Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.
What we’re looking for
The graphs you’re about to see tell Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)’s story, and we’ll be grading the quality of that story in several ways:
- Growth: Are profits, margins, and free cash flow all increasing?
- Valuation: Is share price growing in line with earnings per share?
- Opportunities: Is return on equity increasing, while debt to equity declines?
- Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let’s take a look at Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)’s key statistics:
HIMX Total Return Price data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Revenue growth > 30% | 0.6% | Fail |
| Improving profit margin | 53.4% | Pass |
| Free cash flow growth** > Net income growth | 35.3% vs. 22.3% | Pass |
| Improving EPS | 27.2% | Pass |
| Stock growth (+ 15%) < EPS growth | 155.8% vs. 27.2% | Fail |
Source: YCharts.
* Period begins at end of Q1 2010.
** Period begins at end of Q4 2010.
HIMX Return on Equity data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Improving return on equity | 26.1% | Pass |
| Declining debt to equity | 47.6% | Fail |
| Dividend growth > 25% | (42.7%) | Fail |
| Free cash flow payout ratio < 50% | 15.6% | Pass |
Source: YCharts. * Period begins at end of Q1 2010.
How we got here and where we’re going
Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) earns a respectable, if not strong, five out of nine passing grades today. Yet, its shares have skyrocketed recently (costing it another pass), so investors clearly think there’s a big story here. Part of that story initially circled around a key supplier relationship with Google Inc (NASDAQ:GOOG) and its next-gen Glass wearable computer, but there might be cause for optimism without being part of the tech world’s most controversial new product. Let’s take a look at the facts on the ground.
This opportunity seems to be just around the corner. Although Google has yet to confirm Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)’s role in the Glass display overlay (what do you call a screen in a little transparent square, anyway?), there’s also been some intense speculation that Microsoft Corporation (NASDAQ:MSFT) and Sony are both using Himax technology, as is Samsung. Himax itself has been tight-lipped about its customer base, but has mentioned that its micro-display driver technology has “a very good number of customers,” and the double-digit growth projections for the company’s second quarter seem to support that assertion.
