FormFactor, Inc.: A Soaring 5G Stock for Growth Investors

Impressive Returns Already; More to Come?

At a time when tech companies are getting bigger and bigger, FormFactor, Inc. (NASDAQ:FORM) doesn’t get much attention from the mainstream financial media. As a provider of testing and measurement technologies for semiconductor companies, FormFactor’s current market capitalization is about $3.8 billion.

Nonetheless, investors who knew about the company early on are now laughing all the way to the bank. FormFactor stock is up 69% over the past six months, 107% over the past year, and a staggering 562% over the last five years.

And thanks to 5G, FormFactor, Inc.’s growth story will likely continue for years to come.

You see, an integrated circuit (IC) starts with the concept or prototype phase and then goes through the design validation; application development; production and testing; and upgrade and replace phases.

FormFactor, Inc. has offerings for the entire IC life cycle, including metrology and inspection; characterization; modeling; reliability; design de-bug; and qualification and production testing.

5G has become a major source of tailwinds for the semiconductor industry. In particular, it has been driving increased content in mobility and automotive applications and spurring semiconductor and probe card use (a probe card is an interface between an electronic test system and a semiconductor wafer, and probe cards represent a big part of FormFactor’s business).

The company estimates that growth from advanced packaging and 5G will result in $200.0 million of incremental revenue by 2023. (Source: “Investor Presentation: February 2021,” FormFactor, Inc., last accessed April 19, 2021.)

Mind you, while the rollout of 5G applications is going to be a multi-year process, FormFactor has already been churning out very impressive financials.

In the fourth quarter of the company’s fiscal year 2020, which ended December 26, 2020, it generated $197.0 million of revenue, representing a 10.3% increase year-over-year. (Source: “Formfactor, Inc. Reports 2020 Fourth Quarter Results,” FormFactor, Inc., February 3, 2021.)

FormFactor’s adjusted net income came in at $35.3 million, or $0.44 per fully diluted share, for the quarter. That marked a substantial improvement from the $32.0 million, or $0.42 per fully diluted share, earned in the year-ago period.

Note that the company set new quarterly records for both revenue and adjusted profit.

In the earnings conference call, FormFactor’s president and chief executive officer, Mike Slessor, said,

…with record fourth quarter results and a solid first quarter outlook, we are making progress towards the target financial model we unveiled last year that delivers $2 of non-[generally accepted accounting principles] earnings per share and $850 million of revenue. Test and measurement is becoming a more important and strategic place in the semiconductor industry, driven by trends like 5G and advanced packaging.

(Source: “FormFactor, Inc. (FORM) CEO Mike Slessor on Q4 2020 Results – Earnings Call Transcript,” Seeking Alpha, February 3, 2021.)

Keep in mind that, in full-year fiscal 2020, FormFactor earned $693.6 million of revenue and adjusted net income of $1.49, representing top- and bottom-line growth of 17.7% and 43.3% from 2019, respectively.

While these numbers are already impressive, management’s target financial model of $850.0 million in revenue and $2.00 in adjusted earnings per share means the best is likely yet to come under strong secular trends like 5G.

FormFactor, Inc. (NASDAQ:FORM) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Looking at the above chart, we see that, after an upside move in late March to early April, FormFactor stock has been consolidating and seems to be forming a bull flag pattern.

In technical analysis, a bull flag is a continuation pattern, indicating a brief pause after a stock moves higher in price. If the stock’s trading volume dries up through the formation—in the case of FORM stock, the volume did decline in the consolidation phase—the breakout from the bull flag pattern could result in another upside move.

However you look at it, FormFactor, Inc. deserves the attention of growth investors.