Semi-conductor materials supplier IQE (LSE: IQE) has seen a most uninspiring trend in share price over the past year. On average, its price is 42% lower than that for the year before. But we at the Motley Fool aren’t deterred by one bad year in a company’s share price history. We are interested in long-term investment options that will make you richer.
On that note, I am happy to report that IQE has a better track record. Its price has risen 215% in the past five years or by over three times. Over the last 10 years, its record is even better, with a 684% or almost eight times increase in share price. Now if this isn’t a return worth going for, I don’t know what is!
Future positive, troubled present
But in a rapidly evolving world, the past isn’t necessarily an indicator of the future, helpful as it maybe in assessing the company’s potential. To see where it’s going, the first place I like to look at is the company’s own projections. In this regard the latest financial update released last month was positive, with the CEO, Drew Nelson, pointing to “future growth and margins expansion as volumes increase…“. This sounds like an improvement in sentiment from the last update, which said that the company was “cautiously optimistic”.
IQE’s bump up in sentiment about future conditions is worth highlighting given that it’s sombre about the present. It has warned of a hit to profits for the full year in the update. And there’s enough evidence in the recent results to have investors worried, for sure. The company saw a dip in revenue and also turned loss-making for the first half of 2019 compared to the same time last year. This, combined with its rosy outlook for the future suggests that investors should expect to see a lull before any growth take-offs.
Growth through acquisition
And there is more reason to expect a short-term lull. Earlier today, it reported 100% acquisition of the Singapore based CSDC joint-venture in which it already has a 51% stake. It has now bought out the remaining investors. The venture’s a loss-making one, which is expected to hit IQE’s profits for this year. The company sees Singapore as “strategically significant” though, with proximity to both customers and manufacturers.
With much economic activity increasingly concentrated in Asia, greater geographical diversification can’t hurt the company, as long as it manages to turn the business around. Investors, too, seem happy with the development with a rise in share price today from yesterday, at the time of writing.
I like the company, especially since increasing adoption of 5G technology can be a big positive for it, but it sits uncomfortably as far as geo-politics is concerned. Let’s just say, it’s good to have it on the investing radar for now, but not quite jump in yet.
