A dividend cut from Himax Technologies (NASDAQ: HIMX) should not really surprise investors. The 3D sensing solution chip supplier is in the middle of an inflection point in its business. To get to growth, it must invest in new offices and manufacturing plants. Distributing a lower dividend makes business sense.
Bulls who bought HIMX stock will be stuck with paper losses after HIMX stock rose to close to its 200-day moving average in recent weeks to the $8.75 range. At a P/E that is still over 60 times, valuations are still at high levels relative to the short-term growth prospects. WLO manufacturing holds promise but its growth is back-loaded to the end of this year at the earliest.
As an Asian firm, Himx’s primary customers are also in a cyclical market. The Android market is slowing, while a product refresh towards premium phones with more features do not guarantee growth. This could put pressure on HIMX stock to fall back to the $7 range. At that level, the stock is still valued at over 30 times future earnings but it is justified, given the prospects in 2019 are strong.
Himax may head to $7 but a drop further below that (in the $6 range) seems unlikely.
