Post-merger, RF Micro Devices will be Qorvo. Source: RF Micro Devices.
Why might you invest or not invest in RF Micro Devices?
First, RF Micro Devices is merging with TriQuint Semiconductor , another semiconductor company focused on wireless chips, and the new company's name will be Qorvo . (TriQuint, like RF Micro Devices, is a supplier to Apple , able to enjoy tailwinds from heavy iPhone sales.) Many people, including Wall Street analysts, are bullish about the combination, and several analysts have recently issued or reiterated buy ratings on RF Micro Device's stock. Mike Walkley of Canaccord Genuity, for example, noted that "We believe the combined company can leverage significant cost synergies through consolidating fab facilities, optimizing R&D expenditures, and eliminating duplicate public company costs to generate gross and operating margin leverage."
The company recently exceeded Wall Street expectations with its second-quarter earnings report. Revenue rose 17% year over year (and 15% sequentially), while earnings per share more than doubled and profit margins grew. That's terrific, but a closer look reveals that revenue and earnings growth have been inconsistent . Worse yet, the company faces able competition from companies such as Qualcomm , with its deep pockets, and Skyworks Solutions , with much fatter profit margins.
Management, of course, is bullish , noting in the last earnings report: "RFMD is enjoying multiple diversified, long-term growth opportunities across markets, customers, and products. This is enabling RFMD to capture increasing content across a broad range of mobile data devices and outpace the growth rate of our underlying markets."
If you're looking for dividends, you're out of luck with RF Micro Devices, a young and growing company that needsto invest excess cash in itself. Dividends aren't everything, though. Perhaps the biggest reason to hesitate before jumping into RF Micro Devices stock, though, is its valuation. The stock has more than doubled over the past year, and with a recent P/E ratio near 80, it looks pricey; on the other hand, its forward-looking P/E, based on next year's earnings, is just 12 .
Ultimately, while the company has its merits and is a good citizen, you might find more appealing investment opportunities elsewhere. RF Micro Devices could well perform spectacularly in the future; if you believe it will and can tolerate risk, go for it. Otherwise, perhaps add it to your watchlist.
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The article Investing in Socially Responsible Companies: RF Micro Devices Inc. originally appeared on Fool.com.
Longtime Fool specialist Selena Maranjian,whom you canfollow on Twitter , owns shares of Apple, Qualcomm, and Skyworks Solutions. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, Qualcomm, Skyworks Solutions, and TriQuint Semiconductor. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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