HiMax: Value in Virtual Reality"

12/26/2016 8:00 am EST

Focus: STOCKS

Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

Industry analysts predict that within a decade, virtual reality (VR) will become the fastest-growing technology niche, with annual revenue exploding from $5 billion this year to more than $162 billion in 2020, asserts Benjamin Shepherd, editor Breakthrough Tech Profits.

While the blazingly fast processors that have become available over the past few years are the brains of these VR systems, the display circuits that HiMax Technologies (HIMX) makes are their eyes.

HiMax’s chips for liquid crystal on silicon (LCOS) displays provide the vision for most major developers of virtual and augmented reality. LCOS displays are about as thin as a standard pair of glasses, so they provide a more “normal” user experience.

HiMax isn’t a one-trick pony, though, as it also makes displays for super-sharp 8K televisions. Those 8K sets are still too big and costly for most consumers, but HiMax reports that its shipments of 8K displays are growing.

The company also sells displays and timing controllers for automotive applications, such as heads-up displays and in-vehicle touchscreens, a booming business as cars become more like computers on wheels.

HiMax has had its ups and downs. Revenue dropped precipitously in 2015, falling to $691.79 million from $840.54 million in 2014. That was mostly due to plunging sales of smartphone and tablet displays.

At the same time HiMax beefed up its staff to meet growing VR demand, a move that proved to be a huge drag on earnings per share, which dropped from 44 cents in 2014 to 18 cents last year.

This year is looking up. Full-year revenue is expected to climb back to $803.16 million, while EPS is forecast to hit 41 cents. Next year’s forecast is even better, with revenue expected to hit $844 million and EPS nudging up to 42 cents.

The stock trades at just 21.7 times trailing one-year earnings, down from 41.7 times just a few months ago and well below its five-year average of 27 times. That makes it a bargain.

HiMax is also a ripe takeover target. It holds nearly 3,000 patents in display and timing technologies, intellectual property that is worth the company’s sale price alone.

Because HiMax is based in Taiwan, a purchase also would be a good use of cash for a U.S. company that doesn’t want to repatriate that money for tax reasons.

To be clear, we don’t have any inside track on a potential buyout offer, but the reasons for one are compelling. Buy HiMax up to $15.

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