2023-04-29 01:48:10 ET
Summary
- Lattice Semiconductor shares have recorded a huge drop in April.
- The drop is much bigger than the average for the industry, and appears related to a bearish report by the Semiconductor Industry Association.
- Long-term investors should wait for the company's Q1 2023 report on Monday and buy the shares if the report is positive.
Independent Field Programmable Gate Arrays (FPGAs)-maker Lattice Semiconductor Corp. ( LSCC ) is one of the semiconductor stocks that I follow closely. I last covered this stock in late January whereby I advised investors to start building long-term positions since the stock had gone through an epic 3-year rally and was unlikely to cool off anytime soon. Well, LSCC rallied 26.3% since my article went online before peaking in late March. Since then, LSCC stock has pulled back sharply, losing 16.9% over the course of the current month, including a large 13.4% drop over the past five trading sessions. The semiconductor industry in general has underperformed in April, returning -3.1% vs. +4.1% by the broader market benchmark, S&P 500.
The semiconductor selloff appears to have accelerated after the Semiconductor Industry Association (SIA) reported that global semiconductor sales in the month of February had contracted 4% M/M and a massive 20.7% Y/Y to $39.7 billion.
Global semiconductor sales continued to slow in February, decreasing year-to-year and month-to-month for the sixth consecutive month. Short-term market cyclicality and macroeconomic headwinds have led to cooling sales, but the market's medium- and long-term prospects remain bright, thanks to growing demand across a range of end markets ," said John Neuffer, SIA president and CEO.
Lattice's management has not offered any updates on guidance ever since it reported Q4 2022 earnings on February 13. For that quarter, the company reported revenue of $175.96M (+24.1% Y/Y), $1.23M above the Wall Street consensus while GAAP EPS of $0.49 beat by $0.01. Lattice gave upbeat guidance, saying it expects Q1 2023 revenue in the range of $175 million and $185 million, vs. consensus of $174.70M. Gross margin percentage is expected to be 70% ±1% on a non-GAAP basis while total operating expenses are expected to clock in at $53 million and $55 million on a non-GAAP basis.
The biggest reason I can deduce why LSCC has suddenly tanked is the stock's massive runup. The shares have gained 68.7% over the past 12 months; 306% over the past 3 years and an incredible 1,316% over the past 5 years. Companies with very high expectations like LSCC tend to be punished the most whenever signs of industrywide weakness emerge. Investors routinely tend to rush and take profits whenever this happens.
Lattice Semiconductor 5-Year Share Returns (Seeking Alpha)
Despite the big pullback, LSCC remains pricey as the chart below shows.
LSCC Valuation Metrics (Seeking Alpha)
However, LSCC scores much higher on profitability metrics. Even better, virtually all the company's profitability metrics have improved significantly over the past five years.
LSCC Profitability Metrics (Seeking Alpha)
Insider Selling
The other reason I can think of that explains the LSCC crash is increased insider selling activity.
Over the past 12 months, insiders have bought only 10,570 LSCC shares but have offloaded 1,334,680 shares for a net of 1,345,250 shares sold , including a sale by the CFO & Corporate VP, Sherri Luther who sold $866k worth of shares. That might not look like much since LSCC has ~141M outstanding shares. However, it's quite significant when you consider that Lattice Semiconductor insiders own ~US$168m worth of shares, good for 1.4% slice of the company.
Generally, the market tends to become suspicious when insiders are selling so much of their shares because they presume it to be a vote of no confidence in the company's future. However, LSCC has beat expectations every single time over the past 12 months and has mostly been issuing strong guidance. We, therefore, surmise that LSCC insiders have merely been taking profits.
Still Bullish
Lattice Semiconductor is slated to report Q1 2023 earnings on Monday, May 1st. Investors will be eager to check whether this company remains on the right track or is suffering from the economic malaise that has been roiling the global semiconductor sector.
My bullish thesis on LSCC remains unchanged. In my latest piece on LSCC, I described how its latest innovation, Lattice Avant, will double the company's addressable market.
According to LSCC, Lattice Avant is,
''…a new FPGA platform purpose-built to bring the company's power efficient architecture, small size, and performance leadership to mid-range FPGAs, offering best-in-class power efficiency, advanced connectivity, and optimized compute. The Lattice Avant-E family of mid-range FPGAs are the company's first products built on the 16nm FinFET Avant platform. The Avant-E family delivers the highest DSP and embedded memory to logic ratio for mid-range FPGAs, enabling intelligence at the edge for applications in automotive, communications, compute, and industrial market segments. ''
LSCC stock currently has a mean price target of $90.75, implying 14.4% upside. The shares have an RSI reading of 30.4, implying LSCC has been oversold. Investors should wait for the company's report on Monday and, if positive, buy for the long haul.
For further details see:
Lattice Semiconductor: Big Pullback Offers Fresh Entry Points