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Bear Of The Day: Ichor Holdings (ICHR)

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Ichor Holdings (ICHR - Free Report) has slipped to a Zacks Rank #5 (Strong Sell) after it missed earnings back in early February.  The stock is right around the same price, but estimates have fallen in a meaningful way.  Since that hasn't really impacted the stock, it has moved the valuation metrics.

ICHR's last report had EPS at $0.32 but the Zacks Consensus Estimate was calling for $0.35.  That three cent miss translates into a 8.5% negative earnings surprise.  This was the only miss of the last 4 quarters, so its not like there has been a very poor earnings history.

Estimate Revisions

The key to the Zacks Rank is the revision to earnings estimates.  As the estimates fall, so does the Zacks Rank, and that is just what we have in the case of ICHR.

60 days ago, the Zacks Consensus Estimate for this quarter was $0.42, but that was slashed to the current level of $0.26.

The estimate for the next quarter fell from $0.57 to $0.33 over the same time period.

Full year 2019 estimates slipped from $2.45 to $1.80.  The Zacks Rank tends to weight the full year number more than the current quarterly numbers.  This is the main reason the Rank fell to the lowest level.

2020 estimates have also dropped, moving from $2.83 to $2.68.

Valuation

Normally I would be excited to see a stock at 12x forward earnings multiple for a tech stock like this would excite me.  Problem is, growth is contracting at 22% from last year.  The price to book multiple of 2.5x is good for value investors, while a 0.6x price to sales multiple isn't that great for growth investors.  Margins have been moving in the wrong direction, and until they turn around, this is a good stock to avoid.

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