ON Semiconductor Corp (NASDAQ:ON) is an American semiconductor supplier. The company was founded in 1999, and is headquartered in Phoenix, AZ.
As of 15 Mar 2022, ON's stock is currently trading at $56.21 and is down by 20% year-to-date (YTD). Over the past 12 months, the stock is up by 43%, whilst the S&P 500 is up by 6%, meaning the stock has outperformed the market by approximately 37% over this period.
But is ON worth considering as a long-term investment opportunity? Let’s take a closer look and see what the numbers tell us.
Why are fundamentals important for investors?
Over the long term, a company’s stock price usually reflects the fundamental metrics, and analyzing these gives us a better understanding of the underlying trends which can tell us if the company is likely to be a good investment over the long term.
By 'fundamentals', we mean a set of key metrics including price to earnings ratio (P/E ratio), earnings per share (EPS), price to sales ratio (P/S ratio) and debt. When looked at together, fundamentals can tell us whether or not a company is likely to be a good investment, and for as long as investors have been buying stocks, they have relied on fundamentals to assess the financial health of an organization as well as its growth prospects.
What do ON’s fundamentals tell us about the investment opportunity?
A closer look at ON Semiconductor Corp's fundamentals
First, let's look at the ON's EPS. This metric is crucial to help us find out how profitable the company is on a 'per share' basis, and is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares. So if a company has $1 million in profit and 1 million shares of outstanding stock, it will have an EPS of 1.
Based on its most recent financial statements, ON Semiconductor Corp has EPS of 2.27, and year-on-year, the company's EPS grew by 307%, which is a really positive sign.
Another key metric to look at is the P/E ratio because it immediately tells a potential investor how cheap or expensive the stock is. The ratio tells us how much investors are willing to pay for a company’s earnings, and it is calculated by taking the price of a stock and dividing it by the earnings per share. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates it might offer more value.
ON has a P/E ratio of 23.7, based on its most recent financial statements. This is 5% lower than the average P/E ratio across an industry benchmark, which is 24.9, indicating that the stock may be slightly inexpensive in relation to how much it earns.
Next, let's look at one of the most common valuation metrics - the P/S ratio. It is calculated as the current price divided by sales for the previous 12 months, and helps us get a sense of how much investors are willing to pay for a company's revenues on a 'per dollar' basis.
ON's P/S ratio is currently 3.55. Compared to the sector-wide average of 6.3, this is 45% lower, indicating that the stock may offer more value compared to other companies in the same sector.
Another key metric to look at is a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
Based on its most recent financial statements, the semiconductor company's P/BV is 5.08, which is 8% lower than the industry benchmark of 5.5.
Finally, when analyzing a company as an investment opportunity, you should always take a look at how much debt they have on its books, as this can help you assess how risky a company is. Carrying a large amount of debt can be a massive red flag if the company is not generating enough free cash flow to service the debt.
As of 15 Mar 2022, ON Semiconductor Corp has total debt of $3250M, which has fallen by 11% over the past year, and it also has Cash & Short-Term Investments totalling $1373M on-hand, giving the company a 'net debt' of $1876.8M.
What constitutes an acceptable level of total debt can vary considerably among different industries, but there's no denying that ON Semiconductor Corp's current levels of net debt are a bit higher than we would like to see them.
Is ON Semiconductor Corp worth a look?
All in all, we’ve noticed some encouraging trends at ON.
To be more specific, the semiconductor company's stock is up by 43% over the past year and the company has a lower P B/V, lower P/S ratio compared to competitors within the same industry and . That's what we like to see.
Whilst we can't ignore the fact that the stock is down by -20% YTD, we think ON is worth keeping an eye on.
As with any stock however, there are additional factors to consider before making an investment decision. Please exercise caution and do your own due diligence before purchasing shares.