Red-hot chip stocks are actually getting cheaper as their prices rise

Semiconductor stocks traded in the U.S. are still on fire, even though many trade at low price-to-earnings valuations.

A deep data dive highlights 12 companies that are showing double-digit increases in sales and improving gross profit margins.

The group is volatile, with considerable swings in share prices over short periods. But the demand for microchips isn’t slowing, so patient long-term investors have plenty of opportunities in the industry.

Read: Nvidia earnings preview: Data center, gaming need to distract from crypto weakness

Starting with the S&P 1500 Composite Index — made up of the S&P 500












SPX, +0.94%










the S&P Mid-Cap 400 Index












MID, +0.73%










and the S&P Small-Cap 600 Index












SML, +0.58%










 — there are 25 companies in the semiconductor-manufacturing industry and another 21 electronic-production-equipment manufacturers, according to FactSet. Companies in that second group all count semiconductor manufacturers among their customers.

From this list of 46 companies, we pared the group to a dozen that have increased their quarterly sales per share by at least 25% while improving their gross profit margins, according to their most recent quarterly earnings announcements:

You can click the tickers for more information about each company, including news, price ratios, estimates, charts and financial results.

We looked at sales per share rather than raw revenue because the per-share numbers reflect any dilution to stockholders from the issuance of new shares for any reason. The per-share numbers also reflect any declines in companies’ share counts from buybacks.

A company’s gross profit margin is its sales, less the cost of goods or services sold, divided by sales. It does not incorporate overhead, financing or tax expenses, but provides insight into the health of the core business. A company whose gross margins decline consistently might be facing difficult competition, forcing it into heavy discounting. Ideally, sales are increasing significantly while prices for the company’s products and services are also increasing.

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Volatility and opportunity

Total returns for the group show how fickle the price action can be in any given year. However, the long-term returns tell a different story for most:

P/E ratios

There have been some significant revisions to analysts’ earnings estimates for some members of the group. For example, the consensus 2018 earnings estimate for Kulicke & Soffa Industries












KLIC, +2.15%










 has declined to 42 cents a share from $1.66 at the end of 2017, according to FactSet. This reflects a first-quarter charge of $105 million springing form the tax-reform legislation that President Trump signed in December.

So here are price-to-earnings ratios based on consensus estimates for the next 12 months, compared with the same ratios a year ago:

It’s probably not a good idea to read too much into these P/E valuations, but many look low, especially for companies growing so rapidly, when considering that the S&P Composite 1500 trades for 16.4 times weighted consensus earnings estimates for the next 12 months.

The P/E for Micron Technology












MU, +3.23%










for example, looks ridiculously low, as if many investors lack faith in the company’s ability to continue to grow at a fast pace. The valuation is even lower than it was a year ago and the stock is up 79% in the meantime.

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