BUSINESS
Diodes Incorporated designs, manufactures, and supplies application-specific standard products in the discrete, logic, analog, and mixed-signal semiconductor markets worldwide. It focuses on low pin count semiconductor devices with one or more active or passive components. The company offers discrete semiconductor products, such as MOSFET, TVS, and performance Schottky rectifiers; GPP bridges and retifiers, and performance Schottky diodes; Zener and performance Zener diodes, including tight tolerance and low operating current type; standard, fast, super-fast, and ultra-fast recovery rectifiers; bridge rectifiers; switching diodes; small signal bipolar and prebiased transistors; thyristor surge protection devices; and transient voltage suppressors.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, DIOD is expected to continue to be a modest Value Builder.
Diodes has a current Value Trend Rating of D (Negative).
This rating combines inconsistent signals from two proprietary PTR measures of a stock’s attractiveness. Diodes has a neutral Appreciation Score of 57 but a very low Power Rating of 12, producing the Negative Value Trend Rating.
Diodes’ stock is selling below targeted value. The current stock price of $67.89 compares to targeted value 12 months forward of $80.
This neutral appreciation potential results in an appreciation score of 57 (43% of the universe has greater appreciation potential.)
Diodes has a Power Rating of 12. (This very low Power Rating indicates that Diodes only has a better chance of achieving attractive investment performance over the near to intermediate term than 12% of companies in the universe.)
Factors contributing to this very low Power Rating include: the trend in Diodes’ earnings estimates has been unfavorable in recent months; recent price action has been unfavorable; and the Semiconductor, Related Devices comparison group is currently in an unfavorable position.
INVESTMENT PROFILE
Diodes’ financial strength is high. Financial strength rating is 78.
Relative to the S&P 500 Composite, Diodes Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that DIOD is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, high stock price volatility, and low expected growth. Diodes’ valuation is high: low dividend yield, high P/E ratio, and low price/book ratio. DIOD has unusually low market capitalization.
CURRENT SIGNALS
Diodes’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Diodes’ current technical position is very weak. The stock price is in a 2.8 month down move. The stock has declined 15.4% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Positive development: significant quarterly earnings acceleration occurred. Negative development: significant quarterly sales deceleration occurred.
The stock is currently rated D.
Diodes Inc (NASDAQ: DIOD) stock declined slightly by -0.6% on 4/5/24. The stock closed at $67.89. However, trading volume in this decline was normal at 83% of normal. The stock has been weak relative to the market over the last nine months and has declined -3.5% during the last week.
CASH FLOW
In 2023, Diodes experienced a slight decrease in cash of -$19.5 million (-6%). Sources of cash were slightly lower than uses. Cash generated from 2023 EBITDA totaled +$390.2 million. Non-operating sources contributed +$27.3 million (+7% of EBITDA). Cash taxes consumed -$46.5 million (-12% of EBITDA). Re-investment in the business amounted to -$269.4 million (-69% of EBITDA). On a net basis, debt investors received -$121.0 million (-31% of EBITDA) while equity investors pulled out -$0.1 million (0% of EBITDA).
Diodes’ Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Diodes Peer Group. In most years, Diodes was in the top quartile and second quartile. Currently, Diodes is upper quartile at +7% of EBITDA (+$27.3 million).
Diodes’ Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Diodes Peer Group. (Since 2021 Cash Taxes, %EBITDA has experienced a sharp recovery.) In most years, Diodes was in the second quartile and lower quartile. Currently, Diodes is above median at -12% of EBITDA (-$46.5 million).
Diodes’ Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Diodes Peer Group. (Since 2021 Business Re-investment, %EBITDA has experienced a very sharp decline.) In most years, Diodes was in the second quartile and third quartile. Currently, Diodes is substantially below median at -69% of EBITDA (-$269.4 million).
Diodes’ Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Diodes Peer Group. In most years, Diodes was in the lower quartile and top quartile. Currently, Diodes is lower quartile at -31% of EBITDA (-$121.0 million).
Diodes’ Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Diodes Peer Group. In most years, Diodes was in the second quartile and top quartile. Currently, Diodes is substantially above median at 0% of EBITDA (-$0.1 million).
Diodes’ Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Diodes Peer Group. (Since 2020 Change in Cash, %EBITDA has accelerated sharply.) In most years, Diodes was in the second quartile and top quartile. Currently, Diodes is below median at -5% of EBITDA (-$19.5 million).
Diodes’ Cash, %Revenue has experienced a small downtrend over the period. This downtrend was accompanied by stability for the Diodes Peer Group. In most years, Diodes was in the second quartile and third quartile. Currently, Diodes is below median at +20%.
PROFITABILITY
Diodes’ return on equity has improved very significantly since 2014. The current level of 13.1% is 1.57X the low for the period and is -5.8% from the high.
A major analytical focus for DIOD is a very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors.
The productivity of Diodes’ assets rose over the full period 2014-2023: asset turnover has exhibited a volatile overall uptrend.
Diodes’ pretax margin enjoyed a very strong overall uptrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Diodes’ return on equity is at the upper quartile (13.1%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (11.7%) reflecting asset turnover that is at median (0.70X) and upper quartile pretax margin (16.7%).
Tax “keep” rate (income tax management) is above median (81.7%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (1.36X).
GROWTH RATES
There are no significant differences between Diodes’ longer term growth and growth in recent years.
Diodes’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 9.6% per year.
Total asset growth has been 7.8% per year.
Annual E.P.S. growth has been 24.2% per year.
Equity growth has been 10.5% per year.
Diodes’ consensus growth rate forecast (average of Wall Street analysts) is 0.1% — substantially below the average of the historical growth measures.
Relative to the Diodes Peer Group, Diodes’ historical growth measures are generally top quartile. Revenue growth (9.6%) has been upper quartile. Equity growth (10.5%) has been upper quartile. E.P.S. growth (24.2%) has been at the upper quartile. Total asset growth (7.8%) has been substantially above median.
In total contrast, consensus growth forecast (0.1%) is lower quartile.
PRICE HISTORY
Over the full time period, Diodes’ stock price performance has been volatile and slightly below market. Between June, 2013 and April, 2024, Diodes’ stock price rose +161%; relative to the market, this was a -19% loss. Significant price move during the period: 1) March, 2020 – December, 2021: +170%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -25.9% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -25.9% is lower quartile relative to Diodes Inc Peer Group.
Current 5-year total return performance of 11.0% is slightly above median relative to the S&P 500 Composite.
Through February, 2024, with slightly above median current 5-year total return of 11.0% relative to S&P 500 Composite, Diodes’ total return performance is upper quartile relative to Diodes Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, DIOD’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/earnings ratio, then by the ratio of enterprise value/earnings before interest and taxes, then by the price/equity ratio. The lowest factor, ratio of enterprise value/revenue, is lower quartile.
Relative to Diodes Peer Group, DIOD’s overall valuation is low. The highest factor, the ratio of enterprise value/assets, is above median. Price/equity ratio is at median. Ratio of enterprise value/revenue is below median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Diodes has a large value gap compared to the median valuation. For DIOD to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.94X to 2.28X. If DIOD’s ratio of enterprise value/revenue were to rise to 2.28X, its stock price would be lower by $12 to $80.
For DIOD to hit lower quartile valuation relative to the Diodes Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.94X to 1.38X. If DIOD’s ratio of enterprise value/revenue were to fall to 1.38X, its stock price would decline by $-20 from the current level of $68.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, DIOD is expected to continue to be a modest Value Builder.
Diodes’ current Price Target of $105 represents a +54% change from the current price of $67.89.
This neutral appreciation potential results in an appreciation score of 57 (43% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 57, the low Power Rating of 12 results in an Value Trend Rating of D.
Diodes’ current Price Target is $105 (-14% from the 2023 Target of $122 but +54% from the 04/05/24 price of $67.89). This slight fall in the Target is the result of a +7% increase in the equity base and a -20% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 9.1% — slightly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2015 and 2023. The current forecast is well below the 2022 peak of 19%.
PTR’s growth forecast is 12.0% — below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is well above the 2019 low of 6%.
PTR’s cost of equity forecast is 6.4% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2015 and 2023. The current forecast is well below the 2022 peak of 11.9%.
At Diodes’ current price of $67.89, investors are placing a negative value of $-66 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 18.0% per year, and a return on equity of 12.9% versus a cost of equity of 8.8%.
PTR’s 2025 Price Target of $105 is based on these forecasts and reflects an estimated value of existing assets of $71 and a value of future investments of $34.
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