What Next For Navitas Stock After 2x Rise This Year?

Forbes

3 days ago

Photo illustration byNavitas Semiconductor (NASDAQ:NVTS) is a firm that designs and produces next-generation power semiconductors utilized in consumer electronics, solar energy systems, and electric vehicles. It experienced a nearly 8% increase in stock price during Friday's trading session. The stock has effectively doubled year-to-date. This rise has been fueled by increasing investor confidence regarding Navitas' collaboration with Nvidia. In May, both companies declared their partnership aimed at Nvidia's state-of-the-art 800V high-voltage direct current (HVDC) architecture, which seeks to improve the energy efficiency and scalability of data centers. This agreement could establish Navitas as a provider of advanced silicon carbide (SiC) and gallium nitride (GaN) power chips for the new HVDC architecture, which Nvidia claims will reduce copper usage, minimize rack dimensions, and enhance reliability and efficiency.
Although the collaboration with the AI processor giant is perceived as a vote of confidence in Navitas' capabilities, Navitas is only one of multiple suppliers involved in Nvidia's project. The proportion of Navitas content within each server system and the potential for revenue generation remain uncertain. Nvidia's press release mentioned other companies such as Infineon, MPS, ROHM, STMicroelectronics, and Texas Instruments, along with Navitas, as semiconductor suppliers for the initiative. (Related: RGTI Stock: Path To 10x Growth)
Navitas Stock Appears Risky
In general, Navitas Semiconductor (NVTS) stock does not seem appealing at its current valuation, primarily due to its high valuation and weak fundamentals. Our evaluation of Growth, Profitability, Financial Stability, and Downturn Resilience suggests that the company's operational performance and financial status are concerning. Nevertheless, if you are looking for upside potential with lower volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative, having outperformed the S&P 500 and yielded returns exceeding 91% since its launch.
NVTS is trading at a premium, with a price-to-sales ratio surpassing 17x, compared to only 3.1 for the S&P 500. While the firm reported an impressive average revenue growth of 53.5% over the last three years, this growth has been inconsistent, with revenues decreasing by 16.9% in the past 12 months and plummeting by 39.5% year-over-year in the most recent quarter. Profitability also poses a challenge. Navitas recorded an operating loss of $122 million over the past year, resulting in an exceptionally weak operating margin of -164.2%, which is significantly worse than that of most of its competitors.
On a brighter note, the balance sheet is relatively stable. Navitas holds just $6.9 million in debt, resulting in a low debt-to-equity ratio of 0.5% (in contrast to 19.4% for the S&P 500), as well as a strong cash-to-assets ratio of 20.3%. However, downturn resilience remains low. NVTS stock has performed significantly worse than the benchmark S&P 500 index during many recent downturns. While investors hope for a soft landing for the U.S. economy, what could happen if another recession occurs? Our dashboard How Low Can Stocks Go During A Market Crash illustrates how key stocks performed during and following the last six market crashes.
While it may be wise to steer clear of NVTS stock for the time being, you might want to consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver robust returns for investors. What makes this possible? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks has offered an effective strategy to capitalize on positive market conditions while mitigating losses during market downturns, as detailed in the RV Portfolio performance metrics.
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