Amid a soft session so far on Monday afternoon, ON Semiconductor (NASDAQ:ON) suffered a steep loss, shedding 8% of value so far today. Primarily, the negative catalyst centered on the company’s third-quarter earnings report. Although the headline print generated encouraging results, management provided soft guidance for the current quarter. In response, ON stock fell sharply, at one point dipping below 6%.
According to Investor’s Business Daily, ON – which also goes by the name Onsemi – delivered adjusted earnings per share of $1.45 on sales of $2.19 billion. Analysts polled by FactSet anticipated EPS of $1.31 against revenue of $2.12 billion. Looking at the figures on a year-over-year basis, earnings jumped 67% while sales increased 26%.
For the current quarter, management estimated adjusted EPS would hit $1.26 on sales of $2.075 billion. However, these numbers came in around the middle of its prior outlook. Analysts “had been modeling earnings of $1.25 a share on sales of $2.09 billion in the fourth quarter,” per Investor’s.
Naturally, management focused on the positives undergirding ON stock. According to Hassane El-Khoury, president and CEO of Onsemi, the company “delivered another quarter of record results stemming from continued growth in our focus markets of automotive and industrial. We remain confident in our long-term outlook as we continue to win where semiconductor content growth is accelerating for vehicle electrification, energy infrastructure, advanced safety and factory automation.”
ON Stock May Face Challenges in the Consumer Economy
As Benzinga noted, “ON Semiconductor is a supplier of power semiconductors and sensors focused on the automotive and industrial markets.” It’s the former component that may draw additional questions regarding ON stock.
While the electrification of transportation and mobility offers significant opportunities, the market also arrives with major challenges. Even before the wild dynamics of the post-pandemic new normal dominated proceedings, electric vehicles (EVs) represented pricey modes of transportation. Now, current economic conditions exacerbate this dynamic.
According to Kelley Blue Book early this year, the average price of a new EV hit $62,876. However, estimates for U.S. household income in August 2022 reached only $78,075. In other words, few households are in a position to pay more than 80% of their gross earnings on a car. With prices of other goods and services rising, the EV segment could hit a ceiling. And that would likely bode poorly for ON stock.
According to data from Gurufocus, ON Semiconductor currently represents a “modestly overvalued” investment. Perhaps most glaringly, the company’s price-to-tangible-book ratio stands at 8.75 times. In contrast, the median level for the semiconductor industry is 2.13 times. Therefore, prospective investors may need to tread carefully regarding ON stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.