There is a curious situation brewing in a small-cap supplier of semiconductors. I say “small cap” because this once mighty mid-cap company has been torched down to a market capitalization of just $1.5 billion. It began last year at $89 per share, and currently sits at $24. Compared to the broader semiconductor space, Semtec (NASDAQ:SMTC) has grossly underperformed. And now their earnings is scheduled for Sept. 13, presenting a catalyst opportunity.
Surely this means I’m bullish on a potential regression to the mean? Actually, no. Last Thursday, Sept. 7th, I purchased 100 puts for October 20th at the $20 strike. Why?
1. Delayed Earnings
Originally scheduled for 09/07, SMTC announced on 09/06 that their earnings would be delayed. Companies that postpone a previously announced earnings release date underperform the broad market by 2.44% in the 3 days surrounding the announcement. These companies are also likely to report deteriorating fundamentals, with earnings per share down by about 16% compared to the same period a year ago.
2. Reason for Earnings Delay
Not all earnings delays are created equal. For instance, an act of god, such as weather, or a pandemic, such as Covid, can result in generally muted impacts to the stock.
The problem is that SMTC delayed earnings because “…the Company is working diligently to complete certain procedures to conclude whether a valuation allowance is to be recorded against certain deferred tax assets” - from SMTC investors page.
Given SMTC’s recent acquisition, this calls into question their ability to generate sufficient future taxable income, which is bizarre and a red flag.
3. Sudden Change Notice of CFO
On Sept. 08, it crossed the wire that current CFO Emeka Chukwu would be succeeded by Mark Lin no later than Oct. 4th. Combined with the reasons for the earnings delay, this reeks of potential financial mismanagement, liability concerns, and damage control.
Thank you for your post, I actually have a completely different analysis on where I believe SMTC is heading next.
I think this company is on the verge of returning back great growth and I think fair value for the stock sits at around $24.
I am very happy about the new CEO Paul Pickle, he is known for the cost cutting and I believe that he will help this company grow & improve their margins which will reflect in earnings over time. An improvement in earnings will rise fair value in this stock thé thé mid 30s and providing that their is a good macro environment I could see this stock trading to a high range of $50/60 a share in the next 1/2 years.
Going into earnings tonight, you must realise that the stock is down 15% in 1 week alone meaning any negative news is likely priced in.
I also expect the CEO to lay out his new plan of action moving forward and I think investors will cheer this news as CEO Paul Pickle has a very good track record at making companies grow revenue 3X & market capitalisation 2X like he did as Lantronix.
It’s easy to sell here, however I would be doing the opposite and I wouldn’t be surprised to see the stock pop 20%+ after hours tonight on the guidance moving forward alone. There is lots of evidence of buyers Turing up in the option chain as of today and I like buying here.
Extractio
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@DailyMarketMovements Thank you for your thoughtful reply. The stock is down another 5% after earnings.
I think this company is on the verge of returning back great growth and I think fair value for the stock sits at around $24.
I am very happy about the new CEO Paul Pickle, he is known for the cost cutting and I believe that he will help this company grow & improve their margins which will reflect in earnings over time. An improvement in earnings will rise fair value in this stock thé thé mid 30s and providing that their is a good macro environment I could see this stock trading to a high range of $50/60 a share in the next 1/2 years.
Going into earnings tonight, you must realise that the stock is down 15% in 1 week alone meaning any negative news is likely priced in.
I also expect the CEO to lay out his new plan of action moving forward and I think investors will cheer this news as CEO Paul Pickle has a very good track record at making companies grow revenue 3X & market capitalisation 2X like he did as Lantronix.
It’s easy to sell here, however I would be doing the opposite and I wouldn’t be surprised to see the stock pop 20%+ after hours tonight on the guidance moving forward alone. There is lots of evidence of buyers Turing up in the option chain as of today and I like buying here.