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What’s Really Driving Atmel’s Stock Volatility?

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Atmel’s PE ratio compared to peers

So far in this series, we discussed how Atmel (ATML) reported weak earnings in 4Q15 as Asian distributors reduced their inventory due to the uncertainty surrounding the company’s acquisition. Now let’s see if we can understand how and why Atmel’s stock has reacted to this confusion.

Atmel has a PE (price-to-equity) ratio of 80.3, which is way higher than Intel’s (INTC) 12.9, Texas Instrument’s (TXN) 18.19, and Microchip’s (MCHP) 26.9. Remember that PE ratio determines the price of a company’s stock compared to its EPS (earnings per share). Notably, Atmel’s EPS fell by 25% sequentially in 4Q15, while its stock price rose by 7.4% during the quarter. This contrast in EPS and stock price resulted in a high PE ratio for Atmel.

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Stock price movement

Atmel’s stock is currently trading at $8.11, which is at the midpoint of its 52-week range of $5.84–$10.50. The stock started to grow after August 24, 2015, as the market reacted to acquisition talks with UK-based Dialog Semiconductor. Then, on September 18, the stock dipped by about 13% as rumors leaked about Atmel being in acquisition talks with China Electronics Corporation.

On September 21, 2015, the company’s stock rose again by about 13% when Atmel announced its merger with Dialog, and the next dip of 11% came on October 27, one day ahead of 3Q15 earnings announcement, wherein the company reported weak results.

After November 10, 2015, the stock took a growth trajectory, as most semiconductor stocks reported growth in the last two months of 2015. Rivals Intel and Texas Instruments, for example, were trading at their 52-week highs in November and December 2015.

ETF exposure

Atmel has a market capitalization of just over $3.4 billion, of which nearly 4.9% is held across 39 ETFs. The iShares Russell 1000 ETF (IWB) invests in large-cap US equities across various sectors. It has 0.02% exposure in Atmel.

Atmel’s acquisition by Microchip is scheduled for completion in 2Q16. But as industry headwinds continue, the company is likely to post weak earnings for 1Q16. In the long-term, then, the success of this merger will likely be determined by the realization of synergies.

For ongoing analysis, keep checking in with Market Realist’s Semiconductors page.

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