Is IQE plc a falling knife to catch after dropping 15% today?

Shareholders in semiconductor-wafer manufacturer IQE (LSE: IQE) have seen the stock rally around 190% since July 2016 and today’s full-year results underline the firm’s operational progress. However, this morning’s reaction to the news was less impressive. At one point the shares were down around 16%, but after rallying a little they are ‘only’ 7% down as I write.

A good year’s trading

Headline figures include revenue growth of 16.4% compared with the previous year, adjusted diluted earnings per share increasing 15.4%, and cash from operations up 7.1%. Gross borrowings rose around 60% to stand at just over twice the level of operating profits, which looks manageable.

The big question after such a stellar performance is — is there more growth to come? Chief executive Dr Drew Nelson sounds optimistic, putting the firm’s growth in revenues, profit and cash generation down to the company’s “cutting edge intellectual property”, which, he says, is delivering results through a “diverse range of growth engines.”

IQE has its sights set on what it describes as “global leadership across a range of markets”, arguing that advanced semiconductor materials, such as those IQE produces, are becoming an ever more important enabler of many electronics applications. Dr Nelson reckons the firm’s strategy, underpins this year’s strong financial performance and he sees an ”exciting” outlook for the business.

I can’t argue with the company’s operational and share price momentum, and wouldn’t want to bet against either. City analysts following the firm expect earnings to tick up a further 5% this year and 12% during 2018. meanwhile, at today’s share price around 51p, the forward price-to-earnings (P/E) rating for 2018 sits at just over 15. The company does not pay a dividend.

An improving outlook

The shares of scientific instruments company Judges Scientific (LSE: JDG) have also been bouncing around and are around 1% up as I write, as the firm reveals its full-year results today.

At first glance the results disappoint. Revenue rose 2% compared to the year before, but most other indicators that you’d want to be up are down. Adjusted operating profit plunged almost 24%, cash from operations tumbled 27%, cash on the balance sheet eased by 7% to stand at £7.9m and adjusted earnings per share caved-in by 22%. 

I reckon the market was expecting this poor trading and that the focus is on forward-looking positives, which include organic order intake up 2.9% compared to a year ago, and an increase in the organic order pipeline of 29%. The directors emphasised their confidence in the firm’s forward prospects by pushing up the full-year dividend by 10%.

Fair value?

Chairman Alex Hambro acknowledges that 2016’s trading performance was disappointing and points to the completion of four acquisitions during the year, a solid financial position, a strong order book, and positive order intake since the start of 2017 as reasons to be cheerful about the firm’s ongoing prospects.

At today’s share price of 1,582p, Judges trades on a forward P/E rating of 14.8 for 2018 and the forward dividend yield runs at 2.1%. City analysts following the firm expect earnings to grow around 18% this year and 7% during 2018 and to cover the dividend payout around 3.2 times. That’s not an excessive valuation and I’m comfortable sticking around to see what happens.

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Kevin Godbold owns shares in Judges Scientific. The Motley Fool UK has recommended Judges Scientific. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.