indie Semiconductor: Good Pick, or too Pricey?

indie Semiconductor, Inc. (INDI) provides automotive semiconductors and software solutions. It offers solutions for advanced driver assistance systems, including light detection and ranging, connected car, user experience, and electrification applications. The company was founded in 2007 and is headquartered in Aliso Viejo, California.

Shares of indie Semiconductor Inc. have losses of around 30% year-to-date and approximately 38% in the past 1-year. However, the semiconductor company went public via SPAC last summer. I am bearish on INDI stock, as the company is losing money and valuation is too rich based on its enterprise value compared to sales. You can compare stocks in the automotive industry, like EV cars, to discover new investment ideas.

indie Semiconductor Business News

On January 18, 2022, the firm announced that it is “extending its market reach and building a strategic presence in Japan.” By doing so, it expands its footprint strategically, and enables it to offer customer support that is localized.

On December 8, 2021, indie Semiconductor “launched the Company’s breakthrough Surya™ LiDAR system-on-a-chip (SOC).” Its LIDAR technology aids autonomous driving. The company explained that “Surya™ consumes significantly lower power when compared to current architectures.”

On November 10, 2021, the company announced it had exceeded its Q3 2021 expectations.

More specifically, the firm reported revenue growth of 60%, year-over-year, and 32% sequentially. Looking forward, it guides to above 170% year-over-year revenue growth in Q42021.

Q3 2021 Earnings: Year-over-Year Revenue Growth, Widening Operating Loss

INDI stock earnings are negative as of Q3 2021. In Q3 2021 EPS normalized of -$0.09 was a beat by $0.02, EPS GAAP of -$0.83 was a miss by -$0.71, and revenue of $12.16 million was a beat by $207.00K.

Year-over-year revenue increased 60%. However, on a GAAP basis, the third-quarter 2021 operating loss was $21.3 million versus $3.2 million the year ago. This record revenue was not a catalyst, as the stock declined sharply ever since the release of Q3 2021 financial results.

Fundamentals – Risks

Revenue growth is not enough for a company to thrive. In the first nine months of 2021, indie Semiconductor reported a cumulative free cash flow of ($38.58 million). It had cash and cash equivalents of $323.86 million on its balance sheet on September 30, 2021, which does not pose any liquidity problems now.

The Piotroski-F score of INDI stock is 5.00, a neutral score that indicates average financial health. The company has a Return on Assets of -35.20%, which is worse than the rest of the Semiconductors & Semiconductor Equipment industry. The industry average Return on Assets is 6.88.

INDI stock shows strong negative growth in Earnings Per Share. In the last year, the EPS decreased by -376.67%. Based on the Altman-Z score of 1.86, the company is in the distress zone and has some risk of bankruptcy. As expected, the company also pays no dividend.

Valuation

INDI stock is relatively overvalued based on its PB Ratio (12.22x) compared to the US Semiconductor industry average (4.3x).

Wall Street’s Take

indie Semiconductor has a Moderate Buy consensus, based on two Buy ratings. The average indie Semiconductor price target of $19.50 represents 141.04% upside potential.

Conclusion

indie Semiconductor is building automotive semiconductors and software platforms such as LiDAR, Advanced Driver Assistance Systems (ADAS), and solutions for autonomous vehicles. Its technologies are promising but now the company is unprofitable and burning cash, and has a rich valuation, as sales are still low compared to its market capitalization.

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