Should You Investigate ON Semiconductor Corporation (NASDAQ:ON) At US$44.36?

By
Simply Wall St
Published
August 31, 2021
NasdaqGS:ON
Source: Shutterstock

Let's talk about the popular ON Semiconductor Corporation (NASDAQ:ON). The company's shares saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine ON Semiconductor’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for ON Semiconductor

Is ON Semiconductor still cheap?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 17% below my intrinsic value, which means if you buy ON Semiconductor today, you’d be paying a fair price for it. And if you believe that the stock is really worth $53.39, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that ON Semiconductor’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will ON Semiconductor generate?

earnings-and-revenue-growth
NasdaqGS:ON Earnings and Revenue Growth September 1st 2021

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to more than double over the next couple of years, the future seems bright for ON Semiconductor. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? ON’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on ON, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing ON Semiconductor at this point in time. While conducting our analysis, we found that ON Semiconductor has 2 warning signs and it would be unwise to ignore them.

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