Pixelworks, Inc: Why Former Semiconductor Star Can Double

Demand for Better Display Technology Should Help PXLW Stock

Back in the late 1990s, we witnessed the beginning of many of today’s technology heavyweights. And while many stocks were wiped out by the tech-sector implosion in 2000, many of the leading companies survived and are mainstays on the Nasdaq.

None of the FANG stocks—Facebook, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix Inc (NASDAQ:NFLX), and Alphabet Inc (NASDAQ:GOOG)—were around back then. The major tech stocks at the time were those of computer hardware, software, networking, and early-stage semiconductor companies.

One of the tech stars from that era was Pixelworks, Inc. (NASDAQ:PXLW), whose shares were trading above $150.00 in 2000. Now, Pixelworks stock can be bought for less than a premium coffee.

Pixelworks has been providing technologies used in visual displays, namely computer monitors. But with the current world of high-performance mobile devices, the company has had to adapt.

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So far, it has been a struggle for Pixelworks, Inc. to be relevant again, but the company has decent technologies, so it’s possible.

A look at the following long-term chart shows the failure of PXLW stock to deliver anything sustainable to investors. Essentially, Pixelworks stock has represented dead money for investors.

Chart courtesy of StockCharts.com

But there’s always hope. Recall that Microsoft Corporation (NASDAQ:MSFT) was comatose for a decade, and look at the company now. I’m not staying Pixelworks, Inc. is on the same track, but it may be worth a look.

After teasing investors with a failed breakout to $4.67 in February, PXLW stock retrenched to below the $3.00 level.

While the current technical picture doesn’t give me a lot of confidence in Pixelworks stock, the company’s improving fundamentals could drive another attempt toward $5.00 and a breakout to resistance at $10.00.

Chart courtesy of StockCharts.com

Revenue Growth & Profitability Support Bullish Case for Pixelworks Stock

Things were looking promising for Pixelworks, Inc., with its revenues breaking above $80.0 million in 2017, but the company followed that with three straight years of revenue declines, including a 40.6% drop to a five-year low in 2020.

Fiscal YearRevenues (Millions)Growth
2016$53.4N/A
2017$80.651.0%
2018$76.6-5.1%
2019$68.8-10.2%
2020$40.9-40.6%

(Source: “Pixelworks Inc.” MarketWatch, last accessed July 20, 2021.)

And while the results in 2020 were atrocious, I’m going to give Pixelworks a break and blame it on the COVID-19 pandemic.

Analysts estimate that the company’s revenues will rally by 30.9% to $53.5 million this year and then rally by another 38.4% to $74.0 million in 2022. (Source: “Pixelworks, Inc. (PXLW),” Yahoo! Finance, last accessed July 20, 2021.)

If the numbers play out anywhere near the forecasts, Pixelworks will be trading at a reasonable two times its 2022 revenue estimate. I’m pretty sure PXLW stock will actually trade much higher.

For the next few years as its revenues grow, Pixelworks, Inc. will need to do some serious cost management and move toward earnings before interest, taxes, depreciation, and amortization (EBITDA) income and profitability.

Pixelworks managed to generate EBITDA income in 2017 and 2018 before returning to negative EBITDA in the following two years. As the company’s revenues grow, watch for its EBITDA to move back toward positivity.

Fiscal YearEBITDA (Millions)Growth
2016-$2.5N/A
2017$6.6364.8%
2018$1.8-72.8%
2019-$7.4-511.4%
2020-$18.9-155.6%

(Source: MarketWatch, op. cit.)

Pixelworks, Inc.’s profitability on both a generally accepted accounting principles (GAAP) and adjusted earnings-per-share (EPS) basis have been absent, but there’s hope.

Fiscal YearGAAP Diluted EPSGrowth
2016-$0.42N/A
2017-$0.397.1%
2018-$0.1366.7%
2019-$0.1116.3%
2020-$0.24-120.4%

(Source: MarketWatch, op. cit.)

Pixelworks is expected to narrow its adjusted loss to $0.31 per diluted share this year and to $0.01 per diluted share in 2022. In the best-case scenario, there’s a high estimate of the company delivering profits of $0.08 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

Pixelworks, Inc.’s free cash flow has also been largely negative, but 2020 marked an improvement.

Fiscal YearFree Cash Flow (Millions)Growth
2016-$3.7N/A
2017$9.7364.1%
2018-$1.1-111.7%
2019-$13.0-1,040%
2020-$6.451.2%

(Source: MarketWatch, op. cit.)

A positive development is that Pixelworks, Inc. has strong working capital, along with about $18.0 million in net cash. That will give the company some time to work things out. (Source: Yahoo! Finance, op. cit.)

Analyst Take

Institutional ownership of Pixelworks stock is light, but there are still 105 institutions holding shares, so perhaps something is brewing. (Source: Yahoo! Finance, op. cit.)

Moreover, insiders (who I think know more about the inner workings of the company) added a net 464,669 shares of PXLW stock over the last six months.

It’s not going to be easy for Pixelworks, Inc., but there are signs that the future could look brighter for Pixelworks stock after a decade of little growth.