This is what I’d do about the IQE share price right now

Could IQE plc (LON: IQE) return to its status as a growth leader on the London stock market?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

2018 was a disappointing year for those holding shares in IQE (LSE: IQE). Instead of shooting up, the shares plunged, wiping out most of the gains seen during 2017.

The advanced wafer products supplier rounded off its year of a plunging share price with a hefty profit warning. A trading update on 13 November revealed photonics wafer revenues at constant currency rates would likely show growth of 11% for the full year. Considering the directors expected 35% to 50%, that’s a big miss.

Shipments down

The problem is a major chip company in the Vertical Cavity Surface Emitting Laser (VCSEL) supply chain told IQE that one of its big customers for 3D sensing laser diodes would be materially reducing shipments for the final quarter of the year. Although it’s not stated, I reckon that could be linked to Apple’s recent profit warning, which arose because of poor iPhone sales.

The overall outcome for IQE is that full-year revenue will likely come in at around £156m, up from £154.6m in 2017 but adjusted EBITDA will likely be around £27.5m, compared to just over £37m in 2017. Yet it’s just a setback and not a disaster because the directors expect “to return to previously guided levels of 40% to 60% revenue growth in FY 2019.”

The stuffing has been knocked out of the share price, which is down almost 60% since its November 2017 peak, but I think that’s a good thing. The valuation seemed to be getting ahead of itself during 2017, driven by speculation surrounding the company’s exciting growth prospects. At today’s share price close to 75p, the forward earnings multiple drops to a percentage in the low teens for 2020 due to some City analysts’ estimates for earnings, which is a more palatable rating.

Positive long-term outlook

The new chief financial officer (CFO), Tim Pullen, is due to start on 4 February, and he’ll bring all his experience with him that he gained as CFO of ARM Holdings, his previous appointment. I’m hoping his arrival will coincide with a re-energised dash for growth, which is certainly supported by the directors’ own positive long-term outlook. The forward-looking predictions for earnings growth remain robust, despite the recent setback, and the share price has been looking perky recently.

Many growth firms in the past have seen big undulations in their shares before finally taking off on a sustained bull run and it’s possible that IQE could do well for investors from where it is now. I’m optimistic that the slide in the shares has finished and we could see the price claw back up. So I’d be tempted to dip a toe back in the water with IQE by buying some of the shares today and holding on to them with a five-year-plus time frame in mind. But I expect a lot of volatility going forward.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Modern suburban family houses with car on driveway
Investing Articles

Here’s how an investor could use a Stocks and Shares ISA to target a four-figure second income

Our writer explains how investing the maximum annual amount in a Stocks and Shares ISA could generate a very healthy…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Here’s how an investor could use £20,000 of savings to target £396 a month of passive income!

Our writer demonstrates how it’s possible to build an impressive level of passive income from a portfolio of FTSE 100…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Down almost 10% from its highs, is this FTSE 100 stock a passive income no-brainer?

Unilever shares have fallen from their recent highs. But with the business making rapid improvements, could this be a passive…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 FTSE 100 shares trading below book value

Buying shares below book value can look like a recipe for successful investing. But as Stephen Wright points out, it…

Read more »

Investing Articles

Investing £20,000 in an ISA could one day give an investor £1,564 monthly passive income for life

Harvey Jones looks at how investors can use their Stocks and Shares ISA allowance to build a high and rising…

Read more »

Investing Articles

An 11%+ yield? Here’s the dividend forecast for this top FTSE 100 income share

Forecasts suggest this financial stock could soon offer an 11% dividend yield. Roland Head explains why he thinks this payout…

Read more »

Investing Articles

Prediction: this FTSE 250 trust will beat Rolls-Royce shares over the next 5 years

Our writer reckons this tech-driven FTSE 250 investment trust has what it takes to outperform Rolls-Royce shares between now and…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Top Stocks

Down more than 20% in 2024, Fools think these 4 value stocks will recover (and then some) in 2025

Four Fools see value opportunities among these beaten-down shares in the UK stock markets!

Read more »