Ichor Holdings Ltd Up 83% This Year but It’s Only the Start

Ichor Holdings Ltd Up 83% This Year & There's More to ComeIchor Holdings Ltd: Bullish Chart for this Cash Flow Machine 

Technology stocks will report the biggest gains this year and I expect the appetite for growth stocks to continue into the next decade. Small-cap semiconductor stocks with sound fundamentals and valuations like Ichor Holdings Ltd (NASDAQ:ICHR) have attractive risk/reward potential.

Ichor stock has doubled in price since December 2018, is up 83% this year, and is easily outperforming the Nasdaq and the S&P 500.

Based on sound fundamentals and strong tailwinds in the global semiconductor market, Ichor has the right tools to accelerate higher.

Ichor Holdings provides outsourcing solutions to developers of semiconductors, from the initial concept and design to the manufacturing phase.

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A glance at the chart of ICHR stock displays the impressive rally from the December 2018 low, supported by the bullish golden cross pattern in March. This formation occurs when the 50-day moving average breaks above the 200-day moving average, and it often foreshadows bigger gains.

Chart courtesy of StockCharts.com

Look for Ichor stock to retest $30.00 and move toward its high of $35.51 recorded in October 2017.

My Fundamental Bull Case for ICHR Stock 

Ichor Holdings Ltd’s revenues increased in each of the last four years, rising 231% from 2014 to 2018. The compound annual growth rate (CAGR) was a healthy 35% during this time span.

Fiscal Year Revenues (Millions) Growth
2014 $249.1
2015 $290.6 16.7%
2016 $405.8 39.6%
2017 $655.9 61.7%
2018 $823.6 25.6%

(Source: “Ichor Holdings Ltd.MarketWatch, last accessed November 22, 2019.)

But there are some concerns, as Ichor is slated to report revenue contraction of 25.2% to $616.4 million this year but increase its revenue by 24% to $764.1 million (or as high as $824.4 million) in 2020. (Source: “Ichor Holdings, Ltd. (ICHR),”Yahoo! Finance, last accessed November 26, 2019.)

Along the way, Ichor Holdings Ltd has delivered positive earnings before interest, taxes, depreciation, and amortization (EBITDA). More impressive was that the EBITDA growth rate of 575% from the 2014–2018 time frame far exceeded revenue growth.

Fiscal Year EBITDA (Millions) Growth
2014 $12.7
2015 $22.1 73.7%
2016 $34.9 58.1%
2017 $62.1 77.9%
2018 $85.7 38.1%

(Source: MarketWatch, op. cit.)

As far as profits go, Ichor produced generally accepted accounting principles (GAAP) earnings-per-share (EPS) profits and adjusted profits in the last three years.

Fiscal Year GAAP Diluted EPS Growth
2014 $0.00
2015 -$0.70 -695,500%
2016 $0.70 200.7%
2017 $2.15 207.1%
2018 $2.30 7.1%

(Source: MarketWatch, op. cit.)

But as is the case with revenue, Ichor is estimated to see its adjusted earnings fall to $1.24 per diluted share this year, versus $2.99 per diluted share in 2018.

The positive is that ICHR is expected to ramp up its adjusted earnings to a consensus $2.29 (or as high as $2.70 per diluted share) in 2020. (Source: Yahoo! Finance, op. cit.)

Furthermore, Ichor has been consistently generating positive free cash flow, including a five-year high in 2018 and staggering growth of 907% from 2014 to 2018.

Fiscal Year Free Cash Flow (Millions) Growth
2014 $4.6
2015 $25.3 447.8%
2016 $23.5 -7.4%
2017 $30.6 30.3%
2018 $46.6 52.3%

(Source: MarketWatch, op. cit.)

Analyst Take

Other than a blip in 2019, Ichor Holdings Ltd appears to be set for some strong financial growth on the horizon that could drive its share price much higher.

Ichor stock has been attracting strong insider buying; over the last six months, insiders added a net 197,237 shares to their portfolios. (Source: Yahoo! Finance, op. cit.)

ICHR stock trades at around 11 times its high EPS estimate for 2020. Assigning a forward multiple of 20 times EPS projects a potential target of $53.00.