SMTC - Semtech: Time To Tune In - Initiating With A Buy

2024-03-14 05:50:35 ET

Summary

• Semtech's stock has bottomed out in terms of revenue and stock price movement, providing an attractive risk-reward opportunity, in my opinion.
• I think the company was guided down due to the inventory correction ahead of the peer group, and is now more likely to bounce back earlier.
• SMTC is also cheap compared to its peers, with a lower EV/Sales ratio.
• I share my thoughts on Semtech here, and why I think it'll outperform expectations in FY25.

Investment Thesis

Semtech Corp. ( SMTC ) reported results for its third quarter of FY2024 late last year. Since then, I think the stock has not only bottomed in terms of revenue this quarter and outlook but also in its stock price movement. Semtech stock now provides a more balanced risk-reward after all the negatives have been priced in, and now that the inventory correction causing the downturn should be complete in the first half of the year, according to estimates from Semtech management. I think Semtech stands out from the broader peer group undergoing the correction in that they began to feel the correction earlier and guided down ahead of the peer group, so I believe they will see the recovery earlier as well. Semtech CEO noted on the third quarter's earnings call , "we were able to secure that capacity and delivered as a result, we shipped it all and saw the correction a little bit early. As a result, we're seeing the rebound a little bit early."...

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