ASYS - Amtech: Assessing If A Technical Breakout Is On The Cards

2023-07-04 05:11:00 ET

Summary

• Amtech Systems is a profitable semiconductor company with a strong balance sheet and liquidity profile, with shares currently in a symmetrical triangle formation, indicating a potential bullish breakout.
• The company aims to expand in the 'Power Semiconductor' & 'Silicon Carbide' areas, with potential growth in the electric vehicle space and recent acquisitions aligning with this goal.
• Despite a significant decline in earnings this year, Amtech's assets and sales are discounted compared to the sector, and its equity continues to rise, indicating the potential for a strong recovery when the cyclical tide turns.

Technical Analysis

Amtech Systems, Inc. ( ASYS ) came across our desk from a screen we ran where the objective was to find profitable cheap companies with strong balance sheets and liquidity profiles. If we pull up an intermediate 5-year chart of the semiconductor company, we see that shares seem to be caught in a symmetrical triangle that has been in play for well over a year now. Since the triangle began well after the upward move out of the stock's 2020 lows, we would classify this formation as a continuation pattern, which means the eventual breakout would likely be bullish in nature.

In saying this, since shares are getting closer by the day to the pattern's apex, we would hope that any pending breakout will happen sooner rather than later. We state this because the longer shares move toward the apex, the weaker the pattern would become overall (which would most likely lead to more frustrating consolidation in the share price). Therefore, we would need to see some type of upside breakout before considering putting capital to work on the long side here.

Where Amtech Wants To Make Inroads

Amtech is a well-diversified semiconductor outfit currently operating across the mobile, industrial & computing sectors just to name a few. Where the company really wants to make inroads going forward however is in the 'Power Semiconductor' & 'Silicon Carbide' areas. Management believes the runway for growth in these markets remains very strong especially when one considers the value that can be added through Amtech's silicon carbide LED as well as the array of equipment Amtech supplies for the $15+ billion Power Semiconductor segment.

Furthermore, the recent acquisition of Entrepix (due to its CMP technology & wafer-cleaning prowess) is in alignment with taking more market share in the silicon carbide market. Investors should not underestimate the potential of this market, especially considering what is happening in the expanding electric vehicle space. Given the rollout of EV charging stations remains very early in its initial innings, R&D spending (Concerning silicon carbide-related inventions) right across this space is expected to ramp up very quickly to ensure vehicles can get charged in much faster times.

Cheap Assets & Cheap Sales

Due to the significant decline in bottom-line earnings this year, Amtech's forward GAAP earnings multiple comes in at a lofty 43.45. However, when we focus on the company's assets as well as its sales, we see a discounted company especially compared to the sector in general. In fact, even if we take into account Amtech's minimal debt & cash balance, we see a similar discount through the company's trailing EV/sales multiple

Assets and sales are essentially what enable earnings and cash flow to take place so it obviously makes sense to try and buy them as cheaply as possible. Furthermore, Amtech's equity continues to rise surpassing $100 million in the company's most recent second quarter. Now if equity can rise by a strong double-digit percentage in a year where net GAAP earnings are expected to drop by over 80%, the question investors must ask themselves is how fast the company's net worth will change for the better when the cyclical tide turns in earnest.

As we see below, EPS revisions have already been dialed up for Amtech over the past 30 days. This is really encouraging because if this trend continues, we should see that $0.63 bottom-line estimate for fiscal 2024 begin to gain traction which would then most likely lead to that upside technical breakout we are looking for.

Risks

Given the micro-cap nature of Amtech and below-average selling volume, any significant selling pressure will most definitely move the stock more than larger companies. This reason alone (notwithstanding the stagflation we have seen in recent times) is enough to remain out of this play at present until we get the strong buying volume event we are looking for. Amtech's strong balance sheet where we have shares trading very near book value as well as its strong liquidity should mean that downside risk remains at a minimum here.

Conclusion

To sum up, Amtech's bullish fundamentals surrounding the silicon carbide space in particular should mean we get a technical bullish breakout sooner rather than later. Earnings are expected to rebound sharply next year and shares continue to trade off a very low valuation. Let's see how shares pan out over the remainder of the fiscal year and if EPS revisions can continue to move northward. We look forward to continued coverage.

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