Short Himax: The Ground Floor of Virtual Reality is Still Under Construction


HIMX Forward P/E is lower than its TTM P/E, which indicates an unusual situation and suggests that the stock is overvalued

Virtual reality is a long way from becoming a household device, there are numerous attempts in the past that turned out to be complete failures

According to Ars Technica, Microsoft’s HoloLens is a great hardware, but lacks powerful software to make it a success

We believe that while UBS might be wrong in their target price, the stock is certainly overvalued and investors need to reassess their exposure to HIMX in the short run

Company Overview

Taiwan based Himax Technologies Inc (NASDAQ: HIMX) is one of the global market leaders in display driver ICs and timing controllers used in various digital display devices, including monitors, laptop screens, mobile phones, TVs, and various other consumer and industrial electronic devices.

Besides display driver ICs, Himax Technologies Inc is also involved in digital camera solutions like CMOS image sensors and wafer level optics.

Since its foundation in 2001, Himax Technologies Inc has obtained more than 2,500 patents, which are registered in various countries in three different continents. As a true global display image processing semiconductor solution provider, besides Taiwan, the company maintains offices in China, Korea, Japan and the United States, and currently have over 1,700 employees on payroll.

As of April 3, Himax Technologies Inc had over $1.93 billion in market capitalization, where insider ownership was 41.71%. The company maintained a gross margin of 23.60% and a profit margin of 3.60%.

Numbers Do Not Lie: Himax is Overvalued


Figure 1: Himax Technologies Inc Stock Price Has Increased 45% ((YTD))

Year-to-date, Himax Technologies Inc’s stock price has gained around 45%, and currently trading at a $11.21 per share, which still represents a 36.71% increase since January 1.

Investors who have been following Himax Technologies Inc for long enough knows that the hype is formed based on two potential growth areas, the augmented reality and virtual reality market opportunities.


Figure 2: There is a Certain Divergence Between the Price and Revenue of Himax Technologies Inc

We understand that potential growth opportunity in the future can dramatically improve the valuation of the company, but when that expectation goes too far, mathematically, it is called an overvalued stock.

There is another metric secondary investors should carefully consider before deciding whether a company’s stock is overvalued or not, it’s the price-to-earnings ((P/E)) ratio.


Figure 3: Forward P/E of Himax Technologies Inc is Lower Than Its TTM P/E Ratio

When there is a prospect of prolonged secular growth, usually the forward P/E is higher than its trailing twelve month ((TTM)) P/E ratio. If we take a look at Figure 3, which shows these two P/E ratios of Himax Technologies Inc for the last five years, we can see that the TTM and Forward P/E remained in sync till the start of 2015.

As the quarterly revenue unexpectedly started to collapse in the first quarter of 2015 and the actual valuation of the company started to go down and the TTM P/E fell sharply. As the price gradually went up, it also started climbing in the latter half of the year. On the other hand, the Forward P/E remained high at the start of 2015, because the market was caught off-guard. Investors thought there would be growth in 2015, which turned out to be wrong, as the revenue continued to decline throughout 2015 ((Figure 2)).

Currently, the Forward P/E of Himax Technologies Inc is at 70.06, and the TTM P/E is at 82.68, which indicates that the stock price is trading at an unsustainable level, as actual growth and earnings forecast is lower than current price-to-earnings levels.

Bill Maher May Have a Point!

We will not discuss about if Himax Technologies Inc has enough contracts to sell LCOS and/or WLO for their AR devices and optical engine designs or how their new driver IC design will help “two top-notch VR players.”

We will remind our readers of what comedian Bill Maher mentioned a few weeks ago during his “New Rule” segment. “Stop trying to make this a thing, Nintendo tried it, NASA and …. It [VR] is like Marco Rubio, if this would catch on, it would have been by now,” said the liberal comedian.

We know, bringing something trivial like a late night comedy show into a serious investment discussion may not be appropriate, but he did have a good point. Virtual Reality has been a failure in progress for two decades and regardless how marketers try to sell it, this thing has failed repeatedly to catch on.

On April 1, Ars Technica did a hands-on review of the HoloLens, where the tagline of the article read “It’s an amazing device, and now it needs amazing software to go with it.” We welcome readers to go through the review as after reading it, it will be clear that the device is launched in an ecosystem that needs to be developed a lot in order to make it a huge success.

The success of Microsoft’s HoloLens is not certain; we need to wait a while to see how the device sales actually perform in the real world before putting too much hope in this new thing.


We believe that UBS analysts are right to pick that there are “too much optimism” that is driving the Himax Technologies Inc stocks. While they might be wrong in their price target, which appeared too low, sensible investors need to take a step back and ask the right questions before increasing their exposure in this company.