How to Play the Semiconductor Shortage with Kulicke & Soffa Industries, Inc. (NASDAQ: KLIC)

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Kulicke and Soffa Industries, Inc. (NASDAQ: KLIC) is benefitting from the ongoing semiconductor shortage. From laptop computers to automobiles, smartphones, and beyond, just about everything that requires a computer chip is in short supply and costs a premium. Economists have predicted the chip shortage will end at some point toward the final months of the current year or possibly extend into 2022. Kulicke & Soffa is certainly worthy of your attention as the chip shortage plays out in the months ahead.

KLIC Background

KLIC is an industry pioneer in back-end assembly equipment and also the equipment used in testing. In particular, Kulicke & Soffa specializes in wire bonding machines that connect memory, processors, and additional chips to one another throughout a printed circuit board. The seemingly inevitable spike in back-end capital intensity will hike demand for KLIC’s binding tech. This means KLIC has the potential to break through its prior revenue ceiling, potentially sending the stock to new heights.

Some of the credit should go to Kulicke & Soffa CEO Fusen Chen, who prudently shifted the company to the mini-LED and micro-LED equipment space about five years ago. Mini-LED essentially means enhanced display technology that creates superior color contrast and brighter screens than possible with LCD screens and other screens. As time progresses, more and more TVs and tablets are using mini-LED technology. If KLIC’s executives are correct, the mini-LED market will grow at a 200% clip across the next four years.

Valuation

Kulicke & Soffa has a fairly low forward P/E ratio of 14.27. The stock is currently trading about $6 below its 52-week high of $61.24. The stock’s 52-week low is $21.74. KLIC is fairly stable as its beta is at 1.22. This means if the market significantly undulates, KLIC probably won’t fluctuate too much beyond the overall market. Kulicke & Soffa has plenty of extra cash on its balance sheet, has repurchased shares, demonstrated growth, and expanded its product horizons. In other words, there is plenty of upside to KLIC moving forward.

Analysts

If the analysts are correct, KLIC will jump up to $68 in the months ahead. If KLIC moves up to this level, it will have increased by more than 25% in value. Of the three analysts who have issued KLIC recommendations, each of them views the stock as a Buy while none view KLIC as a Hold or Sell. The analysts’ high forecast for KLIC is $76 while the low forecast is $64. However, KLIC is currently trading at $54 so a move up to $64 would still prove quite profitable for investors who get in now.

Kulicke & Soffa’s Stellar April

KLIC shares increased in price by more than 15% this past April alone. The upward movement is partially attributable to the company’s mid-April preview of its upcoming earnings. The preview made it clear the earnings would be better than expected, largely because of the uptick in demand for LED screens and semiconductors throughout a slew of industries. As a result, KLIC executives hiked quarterly guidance to $340 million of revenue along with adjusted earnings per share of $1.20. The initial guidance was for $300 million and 88 cents, respectively.

Fast forward to the results and Kulicke & Soffa reported a solid $342 million for the quarter and adjusted earnings pers hare of $1.26. Furthermore, KLIC management anticipates the good news will not come to an end, extending guidance for $400 million of revenue along with even better-adjusted earnings per share of $1.35 for the following quarter.

Where Does KLIC go From Here?

There is an argument to be made that KLIC might have hit its peak or is peaking following its exemplary April. After all, Klicke & Soffa is in a cyclical industry. However, KLIC’s CEO is adamant the market for the company’s equipment will remain hot. To be more specific, KLIC’s mini-LED market will likely grow quite rapidly as the tech is used to replace LCD and OLED screens. KLIC could easily move up to $65 per share by the year’s end.

Disclosure: Neither Matt Rego nor Spotlight Growth have any position or relationship with any companies mentioned in this article. No payment was made to create this article. This article should not be taken as a solicitation or recommendation to buy or sell any securities. Please conduct your own research and consult your financial advisor to determine your risk tolerance and investment path. We are not licensed brokers or investment advisors.

How to Play the Semiconductor Shortage with Kulicke & Soffa Industries, Inc. (NASDAQ: KLIC)

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