Should you buy Photronics Inc. (PLAB) stock? Read our comprehensive analysis to find out

Photronics Inc. (PLAB) shares fell nearly 16 percent on Wednesday after the semiconductor photomask manufacturer announced its financial results for the fourth quarter that fell short of consensus forecast.

The Brookfield, Connecticut-based company reported a profit of $6.5 million, or $0.10 per share for the three months ended October 31, as compared to $9.7 million, or $0.15 per share in the same period last year. Wall Street analysts were expecting Photronics to report earnings of $0.15 per share.

Revenue for the quarter came in at $149.3 million, down 4 percent from the comparable period of 2019. Analysts on average were looking for revenue of $153.87 million.

If we look at the sales performance of different segments, revenue from the Integrated circuit (IC) segment came in at $105.9 million, down 6 percent on a year-over-year basis. On the other hand, flat panel display (FPD) segment generated revenue of $43.4 million, down 1 percent from the year-ago quarter.

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Photronics also reported full-year results along with the fourth quarter. It posted earnings of $33.8 million, or $0.52 per share for the fiscal 2020, higher than $29.8 million, or $0.44 per share in fiscal 2019. Revenue for the fiscal 2020 came in at $609.7 million, representing a surge of 11 percent from the prior year.

Chief Executive Officer Peter Kirlin said in a statement, “we achieved record annual revenue for the third consecutive year in 2020, overcoming tremendous global and regional challenges.”

Photronics also issued its financial outlook for the first quarter. The company projected revenue in the range of $145 million to $155 million and profit between $0.07 per share to $0.14 per share for the current quarter.

Opportunities and Risks

Photronics, founded in 1969, is a leading developer of photomask technology for the chip industry. There are many factors that have controlled the growth of the company over the years. Here, we will discuss some of the key indicators unique to Photronics growth.

Research and Development (R&D)

Photronics mainly conducts its R&D activities related to IC photomasks at its nanoFab located in Boise, Idaho, besides a couple of more locations outside the U.S. It also conducts site-specific R&D programs to facilitate strategic clients. R&D activities are vital for the company for enhancing its technology and manufacturing operations.

The company spent $16.4 million on R&D activities in 2019 alone. In short, Photronics needs to continuously spend on research and development to maintain its technical dominance in the photomasks market.

International Presence

Photronics has done well so far in the overseas markets. Revenue from the international operations accounted for 81 percent of its overall revenue in 2019, as compared to 77 percent in 2017. However, its global operations are often hurt by fluctuations in exchange rates, political conditions in different countries, regulatory changes, and unseen trade barriers.

Competition

Photronics is competing in the photomask market with several rivals. Its ability to compete in the industry depends mainly on its product quality, pricing, technical capabilities, and services, among others. It continuously needs to maintain the quality of its products and services to grow its customer base.

Analysts Coverage

The consensus price target for Photronics stock is $16 per share, with a high price estimate of $18 per share, and a low-price target of $13 per share. The average price target represents a premium of more than 40 percent to the stock’s current trading price. If we talk about ratings, most analysts have a “Buy” rating for the stock.

Technical Analysis

Photronics stock has been on a roller coaster ride since the start of 2020. The stock mostly traded around a price of $15 per share during the first two months of the year. However, its share price fell sharply in March to a low of around $9 per share mainly due to the pandemic. The stock managed to regain some of its lost value in the subsequent months.

Overall, Photronics share price has decreased more than 25 percent on a year-to-date basis. The 52-week range of the stock is $8.31-$16.75, while its market capitalization stands at appox. 730.179 million.