Buy Or Fear Navitas Stock After 2x Rally This Year?

Navitas Semiconductor (NASDAQ:NVTS)  a company which designs and manufactures next-generation power semiconductors used in consumer electronics, solar energy systems, and electric vehicles, saw its stock surge nearly 8% in Friday’s trading. The stock has now roughly doubled year-to-date. The gains have been driven by growing investor optimism surrounding Navitas’ partnership with Nvidia. In May, the companies announced that they were collaborating on Nvidia’s cutting-edge 800V high-voltage direct current (HVDC) architecture, which is aimed at enhancing energy efficiency and scalability of data centers. This deal could position Navitas as a supplier of advanced silicon carbide (SiC) and gallium nitride (GaN) power chips for the new HVDC architecture which Nvidia says will lower copper usage, reduce rack sizes and improve reliability and efficiency.

While the partnership with the AI processor behemoth is seen as a vote of confidence in Navitas capabilities, Navitas is just one among several suppliers for Nvidia’s project.  The extent of Navitas content per server system, and potential revenue realization have yet to be determined. Nvidia’s press release cited other companies including Infineon, MPS, ROHM, STMicroelectronics, Texas Instruments along with Navitas as semiconductor suppliers for the project. (Related: RGTI Stock: Path To 10x Growth)

Navitas Stock Looks Risky

Overall, Navitas Semiconductor (NVTS) stock doesn’t appear attractive at current levels, due to its lofty valuation and weak fundamentals. Our analysis of Growth, Profitability, Financial Stability, and Downturn Resilience indicate that the company’s operating performance and financial condition remain concerning. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

NVTS trades at a premium, with a price-to-sales ratio of over 17x, compared to just 3.1 for the S&P 500. While the company posted an impressive average revenue growth of 53.5% over the past three years, growth has been volatile, with revenues down 16.9% over the last 12 months and plunging 39.5% year-over-year in the latest quarter. Profitability is also an issue. Navitas reported an operating loss of $122 million over the past year, translating to an extremely weak operating margin of -164.2%, which is far worse than most of its peers.

On a positive note, the balance sheet is relatively stable. Navitas has just $6.9 million in debt, translating to a low debt-to-equity ratio of 0.5% (vs. 19.4% for the S&P 500), and a solid cash-to-assets ratio of 20.3%. Downturn resilience is also low. NVTS stock has fared much worse than the benchmark S&P 500 index during some of the recent drawdowns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

While you would do well to avoid NVTS stock for now, you could explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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