Strong Q1 2021 Earnings Could Push Diodes Incorporated Stock To $90
Up almost 2.2x from its low in March 2020, at the current price near $70 per share, we believe Diodes Incorporated stock (NASDAQ: DIOD) has strong upside potential. Diodes stock has risen from $32 to $70 off the recent bottom, more than the S&P which increased by around 80% from its lows. Further, the stock is up around 1.5x from the level it was at before the pandemic. However, we believe that Diodes stock could regain its March 2021 high of $91, rising almost 30% from its current level, driven by expectations of continuing demand growth, and strong Q1 2021 earnings. Our dashboard What Factors Drove 120% Change In Diodes Incorporated Stock Between 2018 And Now? has the underlying numbers behind our thinking.
The stock price rise since 2018-end came despite just a 1% rise in revenue from $1.21 billion in FY 2018 to $1.23 billion in FY 2020. Net margins dropped from 8.6% in 2018 to 8% in 2020, and combined with a 3% rise in the outstanding share count, EPS (earnings-per-share) fell from $2.09 in FY 2018 to $1.92 in FY 2020.
Diodes’ P/E (price-to-earnings) multiple rose from 15x in 2018 to 37x by 2020 end, and currently trades around the same level. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of coronavirus and the resulting lockdowns in early 2020 hampered manufacturing activities and affected semiconductor demand across a variety of industries. However, with the economy opening up, demand has been recovering steadily. This is evident from Diodes’ Q1 2021 earnings, where revenue jumped to $413 million vs $281 million for the same period in FY 2020, a jump of almost 1.5x. Operating margins jumped to 11.5% from 9.2% over this period, as revenue grew much faster than expenses. A roughly unchanged effective tax rate saw EPS rise to $0.89 from $0.39 over this period, a jump of more than 2x.
Going forward, demand growth is expected to continue in the near to medium term, driving demand for Diodes’ semiconductor products even higher. Additionally, with the lockdowns being lifted and manufacturing activity returning to pre-pandemic levels, we believe the company will see further revenue and margin growth. These factors should raise investor expectations further, driving up the company’s P/E multiple. We believe that Diodes’ stock can rise nearly 30% from current levels, to regain its recent highs of $90.
While Diodes Incorporated stock may be undervalued, it is helpful to know how its peers stack up. Diodes Incorporated Stock Comparison With Peers summarizes how Diodes Incorporated compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
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