Amtech Systems, Inc. (NASDAQ:ASYS) has caught the attention of investors looking for profitable yet affordable companies with strong balance sheets and liquidity profiles. The semiconductor company’s stock is currently showing signs of a potential technical breakout, making it an interesting prospect for those looking to enter the market.
If we take a look at an intermediate 5-year chart of Amtech, we can observe that the stock has been trapped in a symmetrical triangle for over a year now. This pattern is considered a continuation pattern since it emerged after the upward move from the stock’s 2020 lows. Typically, a breakout from this type of pattern would be bullish in nature.
However, as the stock moves closer to the apex of the triangle, it becomes crucial for a breakout to occur sooner rather than later. The longer it takes, the weaker the pattern becomes, which could result in frustrating consolidation in the share price. Therefore, investors need to witness an upside breakout before considering investing in Amtech.
Amtech is a well-diversified semiconductor company that operates across various sectors, including mobile, industrial, and computing. The company aims to make significant progress in the Power Semiconductor and Silicon Carbide areas. Management believes that these markets offer substantial growth opportunities, especially considering the value that can be added through Amtech’s silicon carbide LED and the range of equipment it supplies for the $15+ billion Power Semiconductor segment.
Moreover, the recent acquisition of Entrepix aligns with Amtech’s strategy of gaining more market share in the silicon carbide market. This market holds immense potential, particularly in the expanding electric vehicle space. As the rollout of EV charging stations is still in its early stages, research and development spending related to silicon carbide is expected to increase rapidly to ensure faster charging times for vehicles.
While Amtech has experienced a significant decline in bottom-line earnings this year, its forward GAAP earnings multiple remains relatively high at 43.45. However, when we consider the company’s assets and sales, it becomes apparent that Amtech is undervalued compared to the sector as a whole. Even after factoring in the company’s minimal debt and cash balance, its trailing EV/sales multiple suggests a similar discount.
Assets and sales are the foundation for earnings and cash flow, so it is logical to seek them at a lower cost. Furthermore, Amtech’s equity continues to rise, surpassing $100 million in the company’s most recent second quarter. If equity can increase by a significant percentage in a year where net GAAP earnings are expected to decrease by over 80%, investors should question how quickly the company’s net worth will improve once the cyclical tide turns.
Recent EPS revisions for Amtech have been positive, which is encouraging. If this trend persists, the estimated bottom-line earnings for fiscal 2024 of $0.63 should gain traction, leading to the anticipated technical breakout.
It is worth noting that Amtech is a micro-cap company, and due to its below-average selling volume, any significant selling pressure will have a more significant impact on the stock compared to larger companies. Additionally, given the recent stagflation trend, it is advisable to stay on the sidelines until there is a strong buying volume event. However, it’s important to mention that Amtech’s strong balance sheet, with shares trading near book value, and its solid liquidity minimize the downside risk.
To summarize, Amtech’s positive positioning in the silicon carbide space suggests a potential technical breakout in the near future. With expected earnings rebounding strongly next year and the stock trading at a low valuation, it will be interesting to see how shares perform for the remainder of the fiscal year and whether EPS revisions continue to move upwards.
