What a fantastic six months it’s been for Amkor. Shares of the company have skyrocketed 74.7%, hitting $50.95. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Amkor, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Amkor Not Exciting?
Despite the momentum, we don't have much confidence in Amkor. Here are three reasons there are better opportunities than AMKR and a stock we'd rather own.
1. Low Gross Margin Reveals Weak Structural Profitability
Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.
Amkor’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 14.4% gross margin over the last two years. That means Amkor paid its suppliers a lot of money ($85.63 for every $100 in revenue) to run its business. 
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Amkor’s EPS grew at an unimpressive 1.5% compounded annual growth rate over the last five years, lower than its 5.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Amkor has shown poor cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 4.1%, below what we’d expect for a semiconductor business.
Final Judgment
Amkor isn’t a terrible business, but it doesn’t pass our bar. Following the recent surge, the stock trades at 26.9× forward P/E (or $50.95 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
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