Stock Analysis

Should You Be Adding Alpha and Omega Semiconductor (NASDAQ:AOSL) To Your Watchlist Today?

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NasdaqGS:AOSL
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Alpha and Omega Semiconductor (NASDAQ:AOSL). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Alpha and Omega Semiconductor

Alpha and Omega Semiconductor's Improving Profits

In a capitalist society capital chases profits, and that means share prices tend rise with earnings per share (EPS). So like a ray of sunshine through a gap in the clouds, improving EPS is considered a good sign. It is therefore awe-striking that Alpha and Omega Semiconductor's EPS went from US$0.63 to US$16.55 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Alpha and Omega Semiconductor shareholders can take confidence from the fact that EBIT margins are up from 2.7% to 13%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:AOSL Earnings and Revenue History April 28th 2022

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Alpha and Omega Semiconductor?

Are Alpha and Omega Semiconductor Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own Alpha and Omega Semiconductor shares worth a considerable sum. Notably, they have an enormous stake in the company, worth US$216m. Coming in at 19% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Should You Add Alpha and Omega Semiconductor To Your Watchlist?

Alpha and Omega Semiconductor's earnings per share have taken off like a rocket aimed right at the moon. That sort of growth is nothing short of eye-catching, and the large investment held by insiders certainly brightens my view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Alpha and Omega Semiconductor for a spot on your watchlist. We should say that we've discovered 4 warning signs for Alpha and Omega Semiconductor (2 shouldn't be ignored!) that you should be aware of before investing here.

Although Alpha and Omega Semiconductor certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

What are the risks and opportunities for Alpha and Omega Semiconductor?

Alpha and Omega Semiconductor Limited designs, develops, and supplies power semiconductor products for computing, consumer electronics, communication, and industrial applications in Hong Kong, China, South Korea, the United States, and internationally.

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Rewards

  • Price-To-Earnings ratio (2.2x) is below the US market (15.6x)

  • Earnings grew by 533.3% over the past year

Risks

  • Earnings are forecast to decline by an average of 81.7% per year for the next 3 years

  • High level of non-cash earnings

  • Shareholders have been diluted in the past year

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