The Internet of Things (IoT) is revolutionizing how we interact with the world around us with its seamless integration into the physical sphere. Industries are also benefiting from IoT technologies being widely adopted for various applications, including smart manufacturing and supply chain management. Enterprise IoT’s anticipated annual growth (CAGR) is expected to be 15% through 2030. One forerunner in the IoT sphere leading the charge is Semtech (SMTC). This IoT provider offers various services, from device connectivity to cloud services, promising to help businesses make better, data-driven decisions.
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Despite recent stock volatility (mainly due to internal company issues), the stock is up over 93% year-to-date and has a positive outlook for future performance. The stock is a compelling option for investors interested in participating in the growing IoT market.
Semtech Is Moving Forward
Semtech is a leading player in designing, developing, and manufacturing analog and mixed-signal semiconductor products. The firm provides an array of significant products, including signal integrity, video, protection, and sensing products, which cater to a wide range of infrastructural and industrial applications.
In addition, Semtech offers several IoT solutions, such as modules, gateways, routers, and connected services, along with a portfolio of connected services encompassing wireless connectivity and cloud-based services.
The company seems to have recovered from the recent 25% stock drop in the wake of CEO Paul Pickle’s surprising resignation less than a year into his tenure. The company quickly appointed Dr. Hong Q. Hou, a Semtech Board of Directors member, as the new President and CEO, effective June 6, 2024. The share price has since recovered and exceeded its levels pre-CEO departure.
Semtech’s Recent Financial Results & Outlook
The company released its financial results for the second quarter of the fiscal year 2025. Revenue was $215.4 million, up 4% from the previous quarter and exceeding analysts’ estimates by $3.13 million. GAAP and non-GAAP gross margin rose by 70 and 60 basis points, respectively. Additionally, the GAAP operating margin increased by 210 basis points, and the non-GAAP operating margin went up by 200 basis points. GAAP diluted earnings per share was reported at a loss of $2.61, while non-GAAP diluted earnings per share (EPS) ended positively at $0.11, outperforming consensus projections by $0.01.
Following second-quarter results, SMTC’s management has offered guidance for the third quarter of FY2025, anticipating net sales between $233M and $227.48M. The Adjusted EBITDA margin is expected to be 20.9% with diluted earnings per share of $0.23, three cents above consensus.
What Is the Price Target for SMTC Stock?
The stock has been on a rollercoaster ride, climbing over 66% in the past year. It trades at the high end of its 52-week price range of $13.13 – $46.86 while demonstrating positive price momentum by trading above the 20-day (33.58) and 50-day (33.47) moving averages. With a P/S ratio of 3.4x, the company trades at a relative discount to its industry peers compared to the Semiconductor industry P/S average of 11.3x.
Analysts following the company have been bullish on the stock. For example, Roth/MKM analyst Scott Searle recently reiterated a Buy rating and a $50.00 price target on the shares, noting the upwardly revised guidance for 3Q.
Semtech is rated a Strong Buy overall, based on the recent recommendations and price targets issued by 11 analysts. The average price target for SMTC stock is $50.00, representing a potential 17.40% upside from current levels.
SMTC in Summary
Semtech offers a compelling, robust proposition for investors interested in the expanding IoT landscape. Despite recent market volatility and leadership changes, the company has shown resilience and adaptability, with steady growth and an optimistic outlook for future performance. Coupled with its diversified service offerings, comprehensive product portfolio, and impressive financial results, Semtech’s potential for sustained growth is substantial. SMTC could provide investors with an appealing opportunity to participate in the potentially lucrative IoT market.
