The Motley Fool

Should you pile into IQE plc, down 15% today?

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.

Man holding magnifying glass over a document
Image source: Getty Images.

Investors in IQE (LSE: IQE) have enjoyed a great run, from below 17p per share in July 2016 to a little over 175p per share in November 2017, that’s a rise of around 930%. However, today’s share price is down – to 105p, as I write – representing a fall of 40% or so from November’s peak – ouch!

If you missed the first wave of excitement, is this dip a second chance to pile in for the next climb as the firm’s growth potential plays out? I’m interested, but cautious, and here’s why…

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

A compelling tale

IQE’s story is a good one. The firm earns its living by manufacturing advanced wafers for the semiconductor industry. By reading company statements, it becomes clear that the directors believe it enjoys a well-protected niche in the industry and is able to defend it with accumulated expertise and intellectual property.

In November, the firm raised £95m in a placing, at a price of 140p per share, in order to ramp up capital expenditure aimed at scaling the business for “multiple high growth mass-market opportunities.”  

The directors see Vertical Cavity Surface Emitting Laser’s (VCSEL) – a key component in fibre optic communications devices – as being a long-term growth driver for IQE across a range of applications such as sensing, Light Detection and Ranging (LDAR), optical communications, machine vision and heat assisted magnetic recording.

In December, chief executive Dr Drew Nelson said: “The adoption of VCSELs in the mass market has been a key revenue driver in the year.” Indeed, the firm is the only supplier of epitaxial wafers to Apple for the consumer technology giant’s TrueDepth 3D camera, which could lead to rapid growth in revenues and profits generated from both Apple and its competitors, if they take up IQE’s offering. If we do end up seeing the acceleration of IQE’s products in mass-market smartphones and other applications, we could witness profits multiplying many times down the road.

An interesting valuation now

It seems clear that the stock rose in anticipation of this positive forward vision, but the reversal we are seeing now suggests speculation pushed the share price ahead of events. Perhaps we’ve just seen a bubble in the price. Today’s 105p is far more realistic.

At this level, the historic price-to-earnings rating is 32. Meanwhile, City analysts following the firm – who seem equally as excited by the firm’s forward prospects – expect earnings to grow by 29% during 2018, and by 44% in 2019, which suggests acceleration that may, or may not, continue.

I think the valuation is now interesting. But we’re dealing with a very popular stock here, and I reckon it’s important to take account of sentiment and psychology as well as fundamentals when making buying and selling decisions.

For me, it makes no sense to buy a stock that is still falling, so I’d want to see some kind of base form on the chart and evidence that the share-price trend has reversed, such as two or three higher lows and higher highs on the chart. Remember, prices can move much further than we believe possible in either direction, and this is just the type of stock where that effect is likely to be most evident.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Kevin Godbold has no position in in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.