Photronics Stock: Why This Small-Cap Semi Play Could Double

Why Photronics, Inc. (NASDAQ:PLAB) Could Potentially Double
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PLAB Stock: A Cheap Semi Play Delivers Big Results

There are not many small-cap stocks that managed to escape the current selling capitulation that drove the Russell 2000 to bear market territory on December 17, 2018.

Unlike the majority of small-cap stocks, Photronics, Inc. (NASDAQ:PLAB) has advanced 10.85% on a year-to-date basis as of December 26, easily outperforming the S&P 500 and the Nasdaq.

The reason why Photronics stock edged higher is that it reported a strong fiscal-year 2018, in which the company saw an impressive turnaround versus fiscal 2017.

Photronics develops the critical reticles and photomasks used by electronic makers to place circuits—the “guts” of a device—on to the screen and chips by burning an image.

PLAB stock has been on an uptrend since February 2018. It is facing channel resistance at around $10.20, which it broke on multiple occasions since 2015 but was unable to hold.

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Chart courtesy of StockCharts.com

If the broader market can stabilize, we could see a breakout by PLAB stock at $10.20 and a run taken initially at $11.00 and $12.00.

Why PLAB Stock Turned Bullish

Photronics reports in a fiscal year ending in October.

Following two straight down years for revenues in 2016 and 2017, Photronics delivered a stellar 18.77% revenue growth to $535.28 million in fiscal-year 2018.

Fiscal Year Revenue (Millions) Growth
FY14 $455.53 7.9%
FY15 $524.21 15.08%%
FY16 $483.46 -7.77%
FY17 $450.68 -6.78%
FY18 $535.28 18.77%

(Source: “Photronics Inc.,” MarketWatch, last accessed December 26, 2018.)

Photronics appears to have turned things around, with revenue expected to edge up to $555.0 million in 2019 prior to an estimated 15.3% surge to $640.0 million in fiscal 2020. (Source: “Photronics, Inc. (PLAB),” Yahoo! Finance, last accessed December 26, 2018.)

Earnings followed revenues higher in 2018, when Photronics reported $0.59 per diluted earnings per share (EPS), up 211% year-over-year.

Fiscal Year Diluted EPS Growth
FY14 $0.41 41.38%
FY15 $0.63 53.66%
FY16 $0.64 1.59%
FY17 $0.19 -70.31%
FY18 $0.59 210.53%

(Source: MarketWatch, op cit.)

For fiscal-year 2019, Photronics is expected to report an earnings decline to $0.49 per diluted share before a strong rally to $0.85 per diluted share in fiscal-year 2020. (Source: Yahoo! Finance, op cit.)

Photronics is also delivering positive free cash flow (FCF) in each of the past five years, including a major 680.24% jump to $37.98 million in fiscal 2018.

Fiscal Year FCF (Millions) Growth
FY14 $5.28 -85.18%
FY15 $29.16 452.73%%
FY16 $71.9 146.86%
FY17 $4.87 -93.24%
FY18 $37.98 680.24%

(Source: MarketWatch, op cit.)

Analyst Take

The turnaround in Photronics appears to be in place and should continue, given the importance of photomasking in the development of electronics.

PLAB stock trades at an inexpensive 11.14 times its fiscal-year 2020 EPS, compared to 16.02 times trailing EPS. Even if PLAB stock were to increase by 50%, the multiple would still be attractive.

PLAB stock also trades at a cheap 0.85 times book value, which is generally unheard of for a technology company.