Impinj’s stock price has taken a beating over the past six months, shedding 42.8% of its value and falling to $101.67 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Impinj, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Impinj Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons you should be careful with PI and a stock we'd rather own.
1. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Impinj’s revenue to rise by 1.3%, a deceleration versus its 21% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.
2. Operating Losses Sound the Alarms
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Impinj’s high expenses have contributed to an average operating margin of negative 1.1% over the last two years. Unprofitable semiconductor companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Impinj’s five-year average ROIC was negative 18.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the semiconductor sector.
Final Judgment
Impinj isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 50.6× forward P/E (or $101.67 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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