Valuation Scorecard: Stock Rating B-Positive (2/27/24)-Photronics Inc (PLAB).

As reflected at the current price of $27, what future Photronics operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, Photronics shares will need to reach $45. Upper quartile performance will require a $53 Photronics stock price by 2029.

Executive Summary

• Photronics’ important characteristics: very high profitability, above average expected growth, above average financial strength, and instability. A big positive influence on Photronics’ valuation is its superior Profitability.
• Average valuation, leading shareholder returns. Current valuation levels are average relative to the Photronics Peer Group. Recent market returns have significantly outperformed the Photronics Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Photronics shares should reach a level of $67 by 2029 — an 16.3% per year total shareholder return. A 2029 stock price of $45 would reflect median performance and a price of $53 would be required to reach upper quartile performance.
• Photronics’ achieved growth is very high. Historical growth has been very high relative to the Photronics Peer Group and forecasted growth is relatively high. Revenue Growth, and Asset Growth have been superior. These factors have buoyed market perceptions of Photronics. Photronics’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity.
• Profitability has been Photronics’ biggest valuation strength. Pretax ROA, Pretax Margin, Asset Turnover, and Return on Equity are all group leading. These factors have strengthened market perceptions of Photronics. The company has high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Photronics’ risk profile is very favorable. Overall variability has been relatively low with relatively low revenue variability, relatively low E.P.S. variability, and very high stock price volatility. Financial Strength is relatively high and earnings’ expectations are relatively very high. The debt/capital ratio has declined very significantly.

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