2023-10-19 16:58:38 ET
Summary
- indie Semiconductor, Inc. stock is still trading around $5 despite pre-announcing Q3 2023 results that will surpass estimates.
- The company says it expects to report 100% sales growth for the quarter and is on track to reach profitability in Q4.
- indie Semiconductor has a clear path to higher revenue levels while the stock trades below 3x forward sales.
Even after indie Semiconductor, Inc. ( INDI ) pre-announced Q3 2023 results that will top estimates, the stock still trades around just $5. The auto tech company went public in a SPAC deal at $10 over 18 months ago, and the market has generally ignored every good earnings report during the period. My investment thesis remains ultra Bullish on the stock here at $5 with the company approaching a forecasted profitable quarter in Q4.
Source: Finviz
Updated Q3 2023
Following the Q2 '23 earnings report, indie Semi. plunged following guidance for Q3 after the company had reported a strong Q2. The auto tech company reported a slight Q2 revenue beat of $52 million and guided to Q3 revenue at a run rate of $240 million, or the equivalent of $60 million.
Source: indie Semi. Q2'23 earnings release
Instead of just providing the revenue target for Q3, management played some games requiring investors to back into the guidance for the quarter. indie Semi. just updated the revenue for Q3 to above $60 million and slightly above guidance.
The auto tech company reported Q3 2022 revenues of $30 million, providing for 100% growth in the just ended quarter. indie Semi. has made several acquisitions over the years, so not all of the revenue growth is organic. Regardless, this level of growth should attract far more investors than the reality of the stock trading at $5.
Path To Profits
The real problem that worried the market is that analysts forecast Q3 revenues to reach $65 million, with Q4 jumping up to $73 million. The updated Q4 revenue estimate is still up at $74 million due to comments from the management team on the earnings call.
On that Q2 '23 earnings call , CFO Tom Schiller reinforced the concept of the auto tech company being profitable in Q4:
...we remain on track to more than double our annual revenues for a third consecutive year and reach profitability in the fourth quarter of this year, driven by sustained sales growth, gross margin expansion, and operating expense leverage.
indie Semi. had a guided to a loss in Q3 of $13 million, so the market clearly doesn't buy the Q4 profit prediction. Later on the earnings call, management appeared to confirm the $74 million revenue target for Q4.
The auto tech would have to hit the following financial targets in Q4 to actually become profitable:
- Revenue (~23% sequential growth) = $74.0M
- Gross Profits @ 55% = $40.7M
- OpEx = $40.7M (R&D $31.2M + SG&A $9.5M)
- Operating Income = $0.0M.
indie Semi. forecasts lower R&D costs in Q4 after the amount surges to $35.5 million in Q3 from higher tape-out costs. The company will reduce the majority of the current losses in Q4 via the vastly higher revenues and a boost in gross margins causing gross profits to surge from only $27 million in Q2 to somewhere around $41 million in Q4.
The company lists 167 million shares outstanding for a market cap of just $920 million at the current price. While the market is playing around with the stock based on whether indie Semi. hits near-term targets, the company has a clear path to far higher revenue levels.
The revenue target for $74 million in Q4 is just the start, not the end game. indie Semi. discussed 2 OEM programs being pushed out a couple of quarters, amounting to $50 million in revenues adding to the analyst targets for 2024 revenues of over $360 million.
The stock now trades at less than 3x sales targets for 2024. Investors shouldn't be sweating over whether indie Semi. hits the revenue target for Q3 or the profit target for Q4. The key to investor returns is the auto tech company making progress towards sales of $1 billion in 2028.
Takeaway
The key investor takeaway is that indie Semiconductor, Inc. only gets cheaper on these stock dips despite the company reporting 100% sales growth. The company continues to innovate in the radar, Lidar, and computer vision areas of auto tech, making the stock an intriguing long-term play in the shift of the auto sector towards autonomous driving while the business is already delivering large revenue growth.
Investors should continue using weakness to load up on indie Semiconductor, Inc. stock knowing a profitable Q4 will reward shareholders while the stock is already priced for weakness that appears unlikely.
For further details see:
indie Semiconductor: Short Path To Profits