Silicon Laboratories (NASDAQ:SLAB) is a fabless semiconductor firm that provides various products, including wireless microcontrollers and sensor equipment. The company serves a range of applications within the broader Internet of Things (IoT), such as industrial automation and smart building controls. Still, SLAB stock has been a stinker.
It’s tough to put it any other way. Since the beginning of this year, SLAB stock is down more than 14%. Over the past 52 weeks, shares suffered a hit of nearly 32%. And in the past five years, the tech firm has returned less than 6%. That’s not what the doctor ordered.
But it’s not difficult to see why SLAB stock is underperforming when you look at the financial context. For fiscal 2024, analysts see a severe erosion in the bottom line to a loss of $1.40 per share. Last year, the company reported earnings of $1.59 per share. Also, revenue may fall 19.5% to $629.67 million.
With that, many exited SLAB stock, leading to a technical pattern called the death cross.
Terrifying Name, Compelling Opportunity
In many if not most cases, a flashing death cross is a phenomenon to watch closely as it can portend even greater pain. This pattern describes the situation where a longer-term moving average (typically the 200-day moving average) slips beneath a shorter-term moving average (usually the 50 DMA).
The classic meaning behind the death cross is that bullish sentiment has died down. In its place is selling pressure, leading to a transition from a cycle of optimism to one of pessimism. Still, the pattern can also be used as a contrarian indicator.
What makes SLAB stock a candidate for a possible bounce-back is the fundamentals. As stated earlier, it offers relevant products for relevant services. Wireless microcontrollers and IoT will likely not be going away anytime soon. Further, analysts are optimistic that in the longer run, Silicon Laboratories will get its act together.
For fiscal 2025, experts believe that earnings per share may hit $2.80 on sales of $934.09 million. That’s a far cry from what the company managed to produce in 2023. Moreover, SLAB stock enjoys a consensus view of moderate buy with an average price target of $136. That implies upside potential of over 24%.
Trade of the Day: Buy SLAB Stock on the Projected Discount
For Tuesday’s Trade of the Day, we’ll go simple: Buy SLAB stock with the belief that the death cross is a contrarian indicator. As stated earlier, it’s too relevant to simply ignore. Further, analysts do expect a recovery in the financials, which may arrive sooner than expected.
Right now, SLAB stock trades hands at a trailing-year sales multiple of 5.42x. Currently, the semiconductor sector runs an average revenue multiple of 4.35X. Therefore, Silicon Laboratories is a bit overvalued. Assuming that fiscal 2025 sales of $934.09 million hold and that shares outstanding remain around 31.92 million, SLAB trades right now at 3.74x projected 2025 revenue.
However, if you wait too long, the company may grow into its valuation, thus eliminating the discounted opportunity. With the death cross pinging, it’s a chance for you to speculate on what may be ahead. It’s risky, but there’s also a method to the madness.
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.
