What a time it’s been for Impinj. In the past six months alone, the company’s stock price has increased by a massive 198%, reaching $197.85 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Impinj, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Impinj Not Exciting?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Impinj. Here are two reasons there are better opportunities than PI and a stock we'd rather own.
1. Operating Losses Sound the Alarms
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Although Impinj was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 5.4% 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.
2. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Impinj’s five-year average ROIC was negative 24.7%, 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 isn’t one of our picks. Following the recent surge, the stock trades at 86.2× forward P/E (or $197.85 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward our favorite semiconductor picks and shovels play.
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