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Is IQE plc A Better Buy Than Imagination Technologies Group plc, Spirent Communications Plc And Laird PLC?

Full-year results released today from IQE (LSE: IQE), supplier to the semiconductor industry, were in line with expectations and show that the company is making encouraging progress. For example, revenue for the second half of the year increased by 15% versus the same time period in the previous year, while adjusted operating rose by 21% to £17.6m as the company experienced increased demand from customers across multiple product areas.

Looking ahead, IQE’s outlook remains upbeat, with trading in the first three months of the current year also being in line with expectations. And, with productivity and efficiency continuing to improve, as the company makes better utilisation of its manufacturing facilities and adds capacity through higher equipment productivity, it is on track to meet full-year expectations for the current year. In fact, earnings are expected to rise by 7%, followed by a further 12% increase next year.

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Despite such strong performance and forecasts, though, IQE trades on a relatively undemanding valuation. For example, it has a price to earnings (P/E) ratio of just 9.2 and, when this is combined with its forecast growth rate, it equates to a price to earnings growth (PEG) ratio of just 0.7. This indicates that growth is on offer at a very reasonable price and that shares in IQE could prove to be a sound long-term investment.

Sector Peers

Of course, the technology hardware sector has a number of larger companies that also have bright futures. For example, Laird (LSE: LRD) is forecast to increase its bottom line by 14% this year and by a further 13% next year, with its P/E ratio of 16.3 equating to a PEG ratio of 1.1 when combined with its expected growth rate. And, it’s a similar story with Imagination Tech (LSE: IMG) and Spirent (LSE: SPT), both of which have appealing PEG ratios of 1.1 and 0.8 respectively. As such, all four stocks (including IQE) seem to be well worth buying at the present time.

However, while Laird is more expensive than its peers, it offers greater stability, with its bottom line having increased in four of the last five years. In fact, the fall in the fifth year in the company’s bottom line was just 3%, which compares favourably to the much more volatile performance of IQE, Spirent and Imagination Tech during the same period.

As such, Laird seems to offer the best balance between growth, value and stability of the four companies but, should you be able to accept greater volatility, then IQE more than holds its own versus Spirent and Imagination Tech, with its lower PEG ratio indicating that its shares could outperform its two larger peers over the medium to long term.

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Peter Stephens owns shares of Laird. The Motley Fool UK owns shares of Imagination Technologies. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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