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Is It Time To Consider Buying Semtech Corporation (NASDAQ:SMTC)?

Simply Wall St ·  {{timeTz}}

While Semtech Corporation (NASDAQ:SMTC) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$62.33 and falling to the lows of US$29.85. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Semtech's current trading price of US$29.85 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at Semtech's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Semtech

What's The Opportunity In Semtech?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. I find that Semtech's ratio of 11.93x is trading slightly below its industry peers' ratio of 15.5x, which means if you buy Semtech today, you'd be paying a decent price for it. And if you believe that Semtech should be trading at this level in the long run, then there's not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Semtech's beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Semtech generate?

earnings-and-revenue-growthNasdaqGS:SMTC Earnings and Revenue Growth September 26th 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. Though in the case of Semtech, it is expected to deliver a negative earnings growth of -3.8%, which doesn't help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? SMTC seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on SMTC, take a look at whether its fundamentals have changed.

Are you a potential investor? If you've been keeping tabs on SMTC for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there's less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven't considered today, which can help crystallize your views on SMTC should the price fluctuate below the industry PE ratio.

If you'd like to know more about Semtech as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Semtech and you'll want to know about it.

If you are no longer interested in Semtech, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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