Over the last six months, Photronics’s shares have sunk to $24.57, producing a disappointing 9.4% loss - a stark contrast to the S&P 500’s 7.7% gain. This might have investors contemplating their next move.

Given the weaker price action, is now the time to buy PLAB? Find out in our full research report, it’s free.

Why Does Photronics Spark Debate?

Sporting a global footprint of facilities, Photronics (NASDAQ:PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.

Two Positive Attributes:

1. Operating Margin Rising, Profits Up

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Looking at the trend in its profitability, Photronics’s operating margin rose by 15.1 percentage points over the last five years, as its sales growth gave it immense operating leverage. Its operating margin for the trailing 12 months was 25.6%.

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Photronics’s EPS grew at a spectacular 34.7% compounded annual growth rate over the last five years, higher than its 9.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Low Gross Margin Reveals Weak Structural Profitability

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Photronics’s gross margin is well below other semiconductor companies, indicating a lack of pricing power and a competitive market. As you can see below, it averaged a 37.1% gross margin over the last two years. Said differently, Photronics had to pay a chunky $62.93 to its suppliers for every $100 in revenue.

Final Judgment

Photronics has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 11.2× forward price-to-earnings (or $24.57 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More Than Photronics

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.