Volatility Could Be The Name Of The Game For Amkor Technology In 2022 – Seeking Alpha

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It's fair to say that holding on to Amkor Technology (AMKR) has not proved worthwhile for some time. AMKR has basically gone sideways for months, which may cause some to give up on AMKR and jump ship. The stock did end 2021 on a strong note, but it's not off to a good start in 2022. Volatility has gone up with the stock making big moves up and down, far more than in the past. AMKR has lost some appeal, but there are still reasons to hold on to the stock. Why will be covered next.

AMKR ended 2021 on a strong note. The stock rallied with a gain of 14% to cap off what was a volatile year. The stock got out of the gates strong in 2022, gaining another 5.8% on the first trading day of 2022. However, this did not last long. The stock lost 5.9% last Friday and it's now down 4.4% YTD.

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The final numbers show that 2021 was a good year for the stock. AMKR appreciated by 64% in 2021, but most of its gains came in the early part of the year. The stock was up 88% at one point in 2021. There has been a lot of volatility and the stock has made lots of big moves up and down, but, at the end of the day, AMKR has essentially gone sideways for much of 2021.

The early struggles in the new year should not come as a surprise. AMKR falls under tech and tech has fallen out of favor lately. Loose monetary and fiscal policies has forced global capital to search for havens where they can get a better return. The biggest beneficiary of this trend has arguably been stocks, tech in particular. Semis are part of tech and they too have benefited handsomely in recent years.

However, the Federal Reserve intends to tighten monetary policy in 2022, which has caused capital to move towards sectors that stand to benefit from higher interest rates. Tech has underperformed as a result. For instance, the Energy Select Sector SPDR Fund (XLE) has gained 10.5% YTD and the Financial Select Sector SPDR Fund (XLF) has gained 5.4% YTD, the former with the aid of geopolitical tensions. In contrast, the Technology Select SPDR Fund (XLK) has lost 4.6% YTD.

This rotation out of tech has affected semis. For instance, the iShares PHLX Semiconductor ETF (SOXX) has lost 3.9% YTD or slightly less than AMKR. Furthermore, the Fed could become even more hawkish due to the pressure of higher inflation, which could lead to a further selloff in tech stocks with a faster tightening of monetary policy. The Fed is unlikely to change course anytime soon, which suggests semis, AMKR included, will have to deal with a powerful headwind for some time. Overcoming strong headwinds is not easy.

Semis are faced with a headwind that wasn't there before. On the other hand, semis can still count on a strong demand environment for semiconductor chips. According to a recent forecast, the worldwide market for semiconductors is expected to grow by 8.8% YoY to $601B in 2022, a new all-time high. AMKR is a provider of outsourced semiconductor packaging and test services. As such, AMKR should benefit from robust demand as the market for semiconductors expands.

In addition, AMKR trades at relatively low valuations. If anyone is interested in riding the market for semiconductors higher, then AMKR offers a way to place a bet without breaking the bank. The table below shows the multiples AMKR trades at. For instance, AMKR has an enterprise value of $6.6B, which is equal to 5.4 times EBITDA.

AMKR

Market cap

$6.16B

Enterprise value

$6.64B

Revenue ("ttm")

$5,784.7M

EBITDA

$1,235.9M

Trailing P/E

10.45

Forward P/E

9.80

PEG ratio

0.13

P/S

1.00

P/B

2.12

EV/sales

1.15

EV/EBITDA

5.37

Source: Seeking Alpha

It's also worth mentioning that while the stock has not made headway in recent months, the same cannot be said of quarterly earnings. On the contrary, AMKR posted record highs for revenue, operating income, EBITDA and EPS in its most recent report. Q3 revenue increased by 24.2% YoY to $1,681M and GAAP EPS increased by 94.7% YoY to $0.74. EBITDA increased by 40.4% YoY to $358M. Advanced packaging was a growth driver once again. The table below shows the numbers for Q3 FY2021.

(GAAP)

Q3 FY2021

Q2 FY2021

Q3 FY2020

QoQ

YoY

Net sales

$1,681M

$1,407M

$1,354M

19.47%

24.15%

Gross margin

19.3%

19.4%

17.8%

(10bps)

150bps

Operating margin

12.6%

11.0%

9.4%

160bps

320bps

Operating income

$211M

$155M

$127M

36.13%

66.14%

Net income

$181M

$126M

$92M

43.65%

96.74%

EPS

$0.74

$0.51

$0.38

45.10%

94.74%

(Non-GAAP)

EBITDA

$358M

$295M

$255M

21.36%

40.39%

Source: AMKR Form 8-K

Guidance calls for Q4 FY2021 revenue of $1.59-1.69B, an increase of 19.7% YoY at the midpoint. It's also a decline of 2.4% QoQ, but this decline is in line with seasonal trends. The forecast expects EPS of $0.55-0.75 in Q4, an increase of 25% YoY at the midpoint. FY2021 revenue and EPS are projected to increase by 19.9% and 71.9% respectively YoY.

(GAAP)

Q4 FY2021 (guidance)

Q4 FY2020

YoY

Net sales

$1.59-1.69B

$1.37B

16.06-23.36%

Gross margin

18.0-20.5%

20.3%

(105bps)

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Volatility Could Be The Name Of The Game For Amkor Technology In 2022 - Seeking Alpha