ASYS - Amtech Systems: Free Cash Flow History Holding Back Share Price Growth

Summary

• The tech sector has seen a selloff in the past 12 months, with layoffs nearing 70,000, though mispricing opportunities exist.
• Amtech Systems is financially healthy, with good liabilities coverage, margins, and low debt.
• Amtech Systems appears to be undervalued compared to both the tech sector and the wider U.S. market, with a pricing attractiveness score of 71.89%.
• However, Amtech Systems has a poor history of free cash flow generation, and with industry headwinds predicted, this makes it difficult to justify a narrative of undervaluation.

The past 12 months have not been kind to the tech sector. With layoffs in 2023 nearing 70,000 , these numbers resemble the early days of the 2020 pandemic. Compare the tech sector's underperformance to the S&P 500 Index (SP500) and we see the selloff in the past 12 months has been brutal for tech companies.

But is there potential value within the sector as the market reacts to layoffs news? We're diving into the numbers to produce a comparison pricing analysis to uncover some oversold and mispriced assets worth investigating further.

We will be comparing Amtech Systems, Inc. ( ASYS ) to the " Top Tech Stocks " screener on Seeking Alpha, which includes 663 of the top-rated tech firms on the market. We'll also use the " All US Stocks " screener as a basis for assessing the wider market.

Amtech Systems is a manufacturer of equipment and consumables for two segments, Semiconductor and Material and Substrate.

(Data & prices correct as of pre-market 23rd January 2023. Want to perform your own analysis using my data? Visit my website to access my spreadsheets and calculators here .)

The Financials: Anything Noteworthy?

While we won't deep-dive into the financials for Amtech Systems, Inc., we'll take a cursory look at the financial health of the firm just to check if there's anything worrying there.

The first thing I do notice is the lack of forward guidance on ASYS, and while there isn't anything super-concerning about this, it does make it difficult to assess how the firm is tracking.

The firm looks very healthy from this view, with excellent liabilities coverage, good margins, and low debt.

Overall, nothing too concerning here. Though we must note this is a small-cap stock ($125m), so we should expect volatility.

Amtech Systems Vs. The Market

The first thing we want to look at is where Amtech Systems, Inc. is priced currently compared to the tech sector and the U.S. market.

Here we see the basic valuation metrics tabled and graphed to give us an indication of how expensive the firm is.

We can see the firm appears to be undervalued across its revenue and earnings figures but isn't producing free cash flow as efficiently as the peer group.

We'll score the firm's pricing attractiveness vs the tech sector, to see if there might be some value in the firm's current price.

A 71.89% weighted score gives us an indication there could be some value to be found in Amtech Systems, Inc., so let's dive a little deeper into pricing the firm.

Finding An Appropriate Pricing Mechanism For Amtech Systems

Some readers may already be familiar with my style of finding a pricing mechanism for firms. If you're new to my work, I recommend having a look at this piece from last year where I break down my methodology step-by-step.

Skipping the usual pre-work, we arrive at the following price for Amtech Systems, Inc.

A big price target of $16.82 gives us an 88% upside based on these valuation metrics, but note that the firm's 5Y revenue growth is lagging significantly behind the rest of the market.

If we take our above-suggested price target and recalculate the valuation metrics, here's where ASYS sits compared to the Tech Sector and the U.S. Market.

With the lack of growth and inefficient cash flow (note that the firm's several-year history indicates free cash flow has been choppy and often negative over the last few years, visualized below), plus headwinds in the semiconductor industry forecast over 2023, it's hard to see a strong narrative for justification for declaring an undervaluation.

Closing Remarks

In conclusion, Amtech Systems, Inc. appears to be undervalued compared to both the tech sector and the wider U.S. market. The firm's financial health is strong, with good liabilities coverage, margins, and low debt.

The pricing attractiveness score of 71.89% suggests there could be value to be found in the current Amtech Systems, Inc. price. However, with a poor history of free cash flow generation, and industry headwinds predicted, it would take some seismic positive news to effect a large upward price change Amtech Systems, Inc.

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