This Automotive Tech Stock Is Up 80{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896} So Far in 2023 — Is It Too Late to Buy?

indie Semiconductor (INDI -2.87{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896}) continues to impress. Though numerous businesses that went general public through SPAC in 2021 are far underwater, this little chip designer proceeds to rapidly scale its small business on the back again of connected automobile and electric powered motor vehicle technologies. As of this producing, the stock has rallied about 73{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896} so much in 2023, bringing it shut to where by it made its debut in community marketplaces nearly two decades back.

Automotive technological innovation is going to be a leading investment pattern in the coming several years, but the run-up in indie Semi’s stock has me a little bit nervous. Is it far too late to buy?

A massive rally, but from wherever?

Traders cheered on indie’s Q4 2022 earnings update. Earnings was $33 million (or $132 million on an annualized foundation), assembly management’s direction furnished a few months back. Additional importantly, nevertheless, the altered gross income margin on products sold was 52.2{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896}, exceeding the expectation for “the 51{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896} range.”

Management continues to be expecting fast gross sales expansion, and even more earnings margin enlargement to go alongside with it. The outlook for Q1 2023 is for “$160 million annualized profits operate-price” — or $40 million in earnings. Profits in Q1 2022 was just $22 million.

Component of the boost will come from a partial quarter of revenue from the not too long ago declared acquisition of GEO Semiconductor, an additional very small chip designer that supplies personal computer eyesight camera chips generally for vehicle companies in Japan and South Korea (like Honda, Hyundai, and Nissan, to identify a several).  

The expectation is for another quarter of altered gross margin in the 52{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896} array at indie, up from 47.4{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896} the yr prior. Base-line profitability (all over again, on an altered non-GAAP foundation, or commonly accepted accounting concepts), is anticipated in the 2nd fifty percent of 2023.

If you’re retaining score, indie documented altered web losses of $63.2 million in whole-year 2022 and $42.4 million in 2021. Indeed, indie is on a roll if it can provide on the adjusted profitability entrance.

A caveat to all that development

Do bear in thoughts, however, that indie’s advancement warrants a footnote. Some of its quick enlargement in the very last couple of many years is owing to a string of acquisitions, as it has sought to spherical out its portfolio of chips used in state-of-the-art driver support devices (ADAS) and other tech connected to EVs and digital infotainment displays. Together the way, it created liberal use of new stock issuance to do so.

Hence, on a for every-share foundation, indie’s revenue growth is just not very as impressive as it appears at 1st glance. 

Knowledge by YCharts.

This impact could commence to reasonable — a bit. indie commenced a $50 million stock repurchase prepare very last quarter. And for its most current GEO acquisition, it lifted personal debt somewhat than relying exclusively on stock to fund it.

GEO will be taken about for $180 million, 50 percent in cash and 50 percent in new indie stock. At the finish of December 2022 (which doesn’t replicate the outflow of hard cash for GEO yet), indie experienced $322 million in hard cash and small-phrase investments and $160 million in debt.

Granted, adding GEO to the blend is expected to accelerate indie’s initiatives to get alone successful. The prolonged-expression outlook for its ADAS, electric powered automobile and charging, and in-cabin infotainment know-how stays vivid. But the major run-up in stock rate appears overdone to me.

indie at present trades for about 12 moments the expected annualized income run amount for Q1 2023, and more than 24 times altered gross income (based mostly on the outlook for 52{38557cf0372cd7f85c91e7e33cff125558f1277b36a8edbab0100de866181896} modified gross margins in Q1). All of that advancement is also being diluted by a considerable total of new shares getting issued to boot.  

indie Semiconductor has demonstrated me enough that I continue being total bullish on its very long-expression prospective clients. But this is a small organization operating in a extremely big, hugely competitive emerging market for automobile tech. The inventory seems to be overvalued right now. I’ve taken a tiny financial gain off the table and bought a few shares from my very little posture in indie Semiconductor. 

I will not think it is too late to have the enterprise, but I consider patience will be rewarded following a massive boost in inventory price tag on good, but not that very good, monetary news.