With a $291.01 million market capitalization, Pixelworks, Inc. (PXLW) is a micro-cap company that  designs, develops, and markets video and pixel processing semiconductors, intellectual property cores, and software solutions. In addition to operating across Japan, the United States, and Europe, the San Jose, Calif.-based company has expanded its presence in China.

It has been working to transform its existing subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd, into a profit center for its mobile, projector, and video delivery businesses. Consequently, the stock has gained 70.8% in price over the past three months to close yesterday’s trading session at $5.55, after hitting its 52-week high of $6.08.

However, PXLW reported losses in the second quarter despite its revenue growth. In addition, its projector business could be impacted again as several countries reimpose strict measures to restrict the spread of the highly contagious COVID-19 Delta variant. Furthermore,  the current semiconductor chip shortage could last until the first half of 2023. So, PXLW’s near-term prospects look uncertain.

Click here to checkout our Semiconductor Industry Report for 2021

Here are the factors that we think could shape PXLW’s performance in the coming months:

Positive Developments

PXLW announced on August 17 that the iQOO 8 series smartphone from the iQOO brand of Vivo, which was recently launched in China, is powered by the company’s innovative visual processing technology. It incorporates the Pixelworks X5 Pro visual processor. In addition, in May, ASUS Zenfone 8 series integrated PXLW’s leading color calibration, DC Dimming, and HDR tone mapping technology  to provide a better on-screen entertainment experience.

Also, in April, PXLW announced that its display processing technology would help power the new Lenovo Legion Phone Duel 2, incorporating the Pixelworks i6 processor. Also, OnePlus announced the launch of the OnePlus 9 Pro flagship smartphone in March. It  contains the Pixelworks X5 Pro visual processor.

Mixed Financials

For the second quarter, ended June 30, 2021, PXLW’s revenue increased 51.9% year-over-year to $14.05 million, driven by continued growth in its mobile and robust recovery in the projector business. The company’s non-GAAP gross profit increased 35.3% year-over-year to $7.41 million. However, its non-GAAP net loss came in at $2.60 million in the quarter, versus  $3.92 million in the year-ago period. Also, its non-GAAP loss per share was  $0.05 compared to $0.10 in the prior-year period.

Stretched Valuation

In terms of forward EV/S, PXLW’s 5.30x is 32.8% higher than the 3.99x industry average. Likewise, the stock’s 5.43x forward P/S  is 33.4% higher than the 4.07x industry average. Furthermore, its 7.40x forward Price-to-Book  is higher than the 5.88X industry average.

POWR Ratings Reflect Uncertain Near-Term Prospects

PXLW has an overall C rating which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. PXLW has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a D grade for Stability, consistent with its 2.11 beta.

It has a D grade for Quality also. This is justified because PXLW’s trailing-12-month ROCE, ROTC, and ROTA are negative versus  the 8.31%, 4.99%, and 3.64%  respective industry averages.

PXLW is ranked #86 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to access PXLW’s ratings for Growth, Sentiment, and Momentum.

Bottom Line

PXLW is a lesser-known company in the semiconductor space, but it has made several positive moves, with its solutions being used in Vivo and OnePlus devices. However, analysts expect its EPS to remain negative in 2021 and 2022. Therefore, the stock looks overvalued at its current price level. So, we think it’s better to wait before scooping up its shares.

How Does Pixelworks (PXLW) Stack Up Against its Peers?

While PXLW has a C grade in our proprietary rating system, check out these top players in the Semiconductor & Wireless Chip industry, with an A (Strong Buy) grade: ChipMOS TECHNOLOGIES INC. (IMOS), United Microelectronics Corporation (UMC), and Silicon Motion Technology Corporation (SIMO).

Note that SIMO is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio.

Learn more here.

Click here to checkout our Semiconductor Industry Report for 2021

PXLW shares rose $0.10 (+1.80%) in premarket trading Wednesday. Year-to-date, PXLW has gained 97.87%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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