FormFactor Stock Could Be on Target for a Double

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Form Factor on Path to Higher Price Levels

Semiconductor testing provider FormFactor, Inc. (NASDAQ:FORM) was trading at near $50.00 in 2007 but steadily declined to the $6.00 level in 2012 prior to staging a long-term rally that continues to be in place and pointing to higher prices.

FORM stock has been spectacular in its multi-year rally and it is delivering alpha to investors with a sizzling gain of 67% over the past year, including 40% this year.

Yet despite the move, my opinion is that FormFactor stock is in an extended rally that could see the price move much higher, which I will discuss later.

FormFactor is intriguing because it produces the technology used by global chip makers to test their products prior to the manufacturing phase. Products tested include DRAM, Flash, and SoC (system on chip) devices.

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What FormFactor does is integral to the process and aims to cut production costs, improve yields, and produce the best chip possible.

Also ReadBest Semiconductor Stocks List for 2017

The company has been widely recognized in the industry for its technology.

My Fundamental Bull Case for FORM Stock

The revenue and earnings picture looks bullish for FormFactor.

FormFactor delivered higher sequential revenue growth in four consecutive years from $178.54 million in 2012 to $383.88 million in 2016, equating to a strong CAGR of 21%.

The positive trend is expected to continue at a healthy 42% to $545.21 million this year prior to narrowing to 4.80% to $571.42 million in 2018. (Source: “FormFactor, Inc. (FORM),” Yahoo! Finance, last accessed September 15, 2017.)

On the bottom line, FormFactor is profitable, with earnings slated to surge 150% to $1.22 per diluted share this year.

As far as the quarterly results, FormFactor has beaten the consensus EPS in five straight quarters and in 10 of the past 14 quarters dating back to the start of 2014. The second quarter saw a 48% beat.

On the long-term price chart, FORM stock traded at a 10-year high of $48.48 in September 2007 prior to steadily declining to a bottom at around $6.00 from 2012 to 2013. Since then, the stock has been on a slow but steady upside rally.

The chart of FormFactor shows the emergence of a bullish golden cross in late 2013 when the 50-day moving average crossed above the 200-day moving average in a bullish manner. FORM stock has managed to hold the 50-day moving average.

form price chart

Chart courtesy of StockCharts.com

An upside move could see the stock target the $20.00 to $25.00 levels, last encountered from 2009 and 2010. A sustained move could see FORM stock break towards $30.00.

forum stock chart

Chart courtesy of StockCharts.com

Analyst Take:

 The bull case for the upside moves in FormFactor stock is supported by the attractive valuation.

Consider that FORM stock is trading at a mere 11.81-times its 2018 EPS, when the multiple should be higher towards 20-times and above. Even the S&P 500 trades at a higher multiple than FormFactor, which justifies a higher share price.

The price/earnings to growth (PEG) ratio of 0.64 suggests a cheap valuation for FORM stock that is trading at well below its five-year CAGR for earnings.

Even a doubling of the stock price to $30.00 would not be surprising.