In my opinion, Welsh company IQE (LSE:IQE) is overvalued and one to avoid for now. IQE is a leading supplier of advanced wafer products and material to the semiconductor industry, which is helping drive connected 5G technologies.
According to leading data and analytics firm GlobalData, 5G adoption in the UK is forecasted to reach over 26% of total mobile subscriptions by 2024. I think IQE’s association with driving 5G tech is possibly its main attraction to investors, but my concern is that it’s overvalued in terms of what it can actually deliver.
In the past six months, the IQE share price has fallen 11.5%. Its recent trading update stated that revenues are down 9% year over year, thought to be due to a combination of factors including weakness in the smartphone market, international trade tensions, a technology market slowdown, and a fall in demand from a major customer of indium phosphide lasers.
Given that IQE has manufacturing facilities in the US, Europe, and Asia, it should be well positioned to adapt to global supply chain trends. However, the £443m company’s cash balance is diminishing, and it reported an adjusted operating loss of £1.9m, which has resulted in negative earnings per share. To adapt globally, money reserves are necessary, no matter how well placed you are.
While it is trading on a ridiculously high price-to-earnings ratio of 476 times, I think it’s one to avoid for now.
Porvair share price rise
Alternatively, I’d consider looking to filtration and environmental technology specialist Porvair (LSE:PRV). The Porvair share price has risen a staggering 49% since 2 January, outperforming both the industrial engineering sector and the FTSE 100.
Porvair has three operating divisions; aerospace and industrial, laboratory, and metal melt quality. The aerospace and industrial division has boosted Porvair’s orders in recent months. It serves global specialist filtration markets throughout the UK, US, Germany, the Netherlands, and China.
The company employs a growth-through-acquisitions strategy and recently acquired Dutch filtration company Royal Dahlman for £6.9m. It has a low debt ratio of under 19% which affords it the flexibility to continue to grow in this way. Porvair also grows organically through its research and development of specialist filtration and environmental technology.
Porvair has a £286m market cap and trailing price-to-earnings ratio of 26 times. Its earnings per share are 23p and it offers a small dividend yield of 0.8%. Porvair achieved revenue growth of 15% in the nine-month period ended 31 August.
Many Porvair products are used to benefit the environment. For example, it has developed water analysis equipment that ensures drinking water is fit for consumption, and filters that monitor the emissions of petrochemicals into the sea.
Its nuclear filters prevent fissile emissions and its metals filtration products prevent contamination of aluminium and iron. The company is committed to improving its environmental profile and has procedures in place to control its use of solvents through its processes.
With climate change increasingly on everyone’s radar, cleaner air is on our minds and environmentally friendly stock picks are on the rise. It’s hard to find a truly sustainable company to invest in, but I like that Porvair’s products can be used to the benefit of the planet.
