Diodes Stock Too Expensive At $50?

DIOD: Diodes logo
DIOD
Diodes

Diodes Inc. stock (NASDAQ: DIOD) is down around 12% since the beginning of this year, but at the current price of around $50 per share, we believe Diodes stock has a significant downside.

Why is that? Our belief stems from the fact that Diodes’ stock remains about 53% higher than the low seen in early 2019. Our dashboard What Factors Drove 52% Change In Diodes Stock Between 2018 And Now? provides the key numbers behind our thinking, and we explain more below.

Relevant Articles
  1. Beating S&P500 BY 11% YTD, What To Expect From Travelers Stock?
  2. Up 50% Over The Last 12 Months, Is Hyatt Stock Still Attractive?
  3. Capital One Stock Gained 44% In The Last 6 Months, What’s Next?
  4. Up 8% Year To Date As 5G Gains Traction, What’s Next For Verizon Stock?
  5. Up 32% In The Last 12 Months, Where Is BNY Mellon Stock Headed?
  6. Rallying 30% YTD, What’s Spurring The Rally In Applied Materials’ Stock?

Diodes Inc. is a semiconductor manufacturer, whose products are used in a wide variety of electrical and industrial applications. Diodes stock’s rise over the past year followed on from a 3% growth seen in Diodes’ revenues, which further translated into a 46% rise in net income. Net Income rose due to a drop in COGS and operating expenses (operating margins came in at 16% in 2019 vs 12.7% in 2018). This, despite a 2% rise in outstanding share count led to a 44% growth in earnings on a per share basis.

Finally, Diodes’ P/E ratio rose from 15x at the end of 2018 to 19x at the end of 2019. While Diodes’ P/E has since dropped to 16x, given the volatility of the current situation, there is additional possible downside for Diodes’ multiple.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus has meant there is much lower demand for computing and hardware devices across all markets, which means lower semiconductor demand, and hence lower demand for Diodes’ products.

In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe Diodes’ Q2 results in July will confirm the hit to its revenue. It is also likely to accompany a lower Q3 as-well-as 2020 guidance.

Regardless, if there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 16.3x to around 15x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $42.

While Diodes stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That Could Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams