PLAB Stock Study (8-27-24)

Posted by Mark on October 19, 2024 at 06:36 | Last modified: August 27, 2024 10:01

I recently did a stock study on Photronics, Inc. (PLAB) with a closing price of $23.79.

M* writes:

     > Photronics Inc is a U.S.-based company that is principally engaged in
     > manufacturing photomasks. The photomasks are photographic quartz
     > plates that contain microscopic images of electronic circuits that
     > are used as a component in the manufacture of integrated circuits
     > and flat-panel displays. The revenue from products designed for
     > integrated circuits production accounts for the majority of total
     > revenue, with the rest derived from products for flat-panel display
     > production. The company’s assets are located in Taiwan, Korea, and
     > the United States. It generates revenue worldwide, including in
     > the United States, Europe, Taiwan, Korea, China, and elsewhere in
     > Asia, with Taiwan contributing the majority of total revenue.

Over the past 10 years, the small-size company has grown sales and earnings at annualized rates of 7.4% and 17.5%, respectively. Lines are somewhat up, straight, and parallel except for YOY sales dips in ’16 and ’17 (sizeable—perhaps due to TCJA) and EPS declines in ’17 and ’19 [FY ends 10/31]. Ten-year EPS R^2 is 0.48 (0.56 excluding ’17), and Value Line gives an Earnings Predictability score of 55.

Over the past decade, PTPM leads peer averages but trails the industry while rising from 9.1% (’14) to 30.3% (’23) with a last-5-year mean of 18.8%. ROE also leads peer averages but trails the industry while rising from 4.2% (’14) to 13.0% (’23) with a last-5-year mean of 8.3%. Debt-to-Capital is lower than peer and industry averages while falling from 18.5% (’14) to 2.6% (’23) with a last-5-year mean of 6.9%.

Quick Ratio is 3.9 and Interest Coverage is 640 per M*. Value Line [surprisingly only] gives a B grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 1.5% contraction and 9.3% growth for ’24 and ’25, respectively (based on one analyst).
• Value Line projects 5.8% annualized growth from ’23-’28.
• CFRA provides ACE YOY 1.5% contraction and 3.7% growth per year for ’24 and ’23-’25, respectively (1).

My 3.0% per year forecast is nearly halving the long-term estimate due to projected short-term weakness.

With regard to EPS growth:

• MarketWatch projects 8.1% and 6.8% per year for ’23-’25 and ’23-’26, respectively (based on one analyst).
• Nasdaq.com projects 4.8% YOY for ’25 (1).
• YF projects YOY 3.4% and 4.8% for ’24 and ’25, respectively (1), along with 5-year annualized growth of 10.0%.
• Zacks projects YOY 2.9% and 4.7% for ’24 and ’25, respectively (1).
• Value Line projects 6.3% annualized growth from ’23-’28.
• CFRA provides ACE of 3.4% YOY and 4.1% per year for ’24 and ’23-’25, respectively (1).

My 5.0% per year forecast is below both long-term estimates (8.1% average). Initial value is ’23 EPS of $2.03/share rather than 2024 Q2 EPS of $2.16 (annualized).

My Forecast High P/E is 15.0. Over the past decade, high P/E falls from 23.8 (’14) to 13.3 (’23) with a last-5-year mean of 20.9 and a last-5-year-mean average P/E of 16.3. I am near bottom of the range [only ’23 and ’22 (13.3) are less].

My Forecast Low P/E is 8.0. Over the past decade, low P/E falls from 17.3 (’14) to 6.8 (’23) with a last-5-year mean of 11.7. I am forecasting near bottom of the range [only ’23 and ’22 (6.8) are less].

My Low Stock Price Forecast (LSPF) of $17.30 is default based on initial value given above. This is 27.3% less than the previous closing price and 3.9% less than the 52-week low.

These inputs land PLAB in the HOLD zone with a U/D ratio of 2.3. Total Annualized Return (TAR) is 10.3%.

PAR (using Forecast Average—not High—P/E) of 4.6% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 22 studies (my study and 9 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 7.4%, 5.6%, 16.9, and 11.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 14.0 is equal to MS and greater than mine (11.5).

MS high / low EPS are $2.78 / $2.14 versus my $2.59 / $2.16 (per share). My high EPS is less due to a lower growth rate. Value Line’s $2.75 is in the middle.

MS LSPF of $18.00 implies Forecast Low P/E of 8.4: less than the above-stated 11.0. MS LSPF is 23.5% less than the default $2.14/share * 11.0 = $23.54 resulting in more conservative zoning. MS LSPF is 4.1% greater than mine, though.

With regard to valuation, PEG is 2.1 per my projected P/E: a bit high. Relative Value [(current P/E) / 5-year-mean average P/E] is low at 0.67.

MOS is robust because my inputs are near or below respective analyst/historical ranges. Although MS sample size limits an impactful comparison, MS TAR is anecdotally 4.3% per year greater than mine.

We must realize much of this analysis is based on the estimates of only two analysts (one aside from Value Line). I believe the fewer the analysts, the larger MOS is needed. I try to achieve that by forecasting below the range.

Per U/D, PLAB is a BUY under $22/share. BI TAR criterion is met ~ $19/share given a forecast high price ~ $39 (no dividend).

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