Is Trending Stock Alpha and Omega Semiconductor Limited (AOSL) a buy it now?
Alpha and Omega Semiconductor (AOSL) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.
Shares of this chipmaker have returned -8.7% over the past month compared to the +4.6% change in the Zacks S&P 500 composite. The industry Zacks Electronics – Semiconductors, to which Alpha and Omega belong , lost 3.8% over this period. Now the key question is: where could the stock be heading in the near term?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates go up for a company, the fair value of its stock goes up. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Alpha and Omega is expected to post earnings of $1.18 per share for the current quarter, representing a year-over-year change of +53.3%. Over the past 30 days, the Zacks consensus estimate has remained unchanged.
For the current fiscal year, the consensus earnings estimate of $4.60 indicates a change of +57% from the prior year. Over the past 30 days, this estimate has remained unchanged.
For the next fiscal year, the consensus earnings estimate of $4.88 indicates a +6.1% change from what Alpha and Omega are expected to report a year ago. Over the past month, the estimate has remained unchanged.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimates, Alpha and Omega are rated at Zacks rank #3 (Hold).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Expected revenue growth
Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a business.
For Alpha and Omega, the consensus current quarter sales estimate of $194 million indicates a year-over-year change of +14.7%. For the current and next fiscal year, the estimates of $772.7 million and $821.85 million indicate variations of +17.6% and +6.4%, respectively.
Latest reported results and history of surprises
Alpha and Omega reported revenue of $193.32 million in the last reported quarter, representing a year-over-year change of +21.7%. EPS of $1.20 for the same period versus $0.65 a year ago.
Compared to Zacks’ consensus estimate of $188 million, reported revenue is a surprise of +2.83%. Surprise EPS was +14.29%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Alpha and Omega are rated A on this front, indicating that they are trading at a discount to their peers. Click here to see values for some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz surrounding Alpha and Omega. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.
This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.