Why Himax Technologies, Inc. Stock Lost 28.4% in the First Half of 2018

What happened

Shares of Himax Technologies, Inc. (NASDAQ: HIMX) lost 28.4% across the first six months of 2018, according to data provided by S&P Global Market Intelligence. The imaging-chip company's stock gained 72.5% in 2017 but is down roughly 40% from the three-year high shares hit in December of last year.

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Short-selling-focused newsletter Citron Research published a comment on Twitter at the end of 2017 alleging potentially fraudulent practices at Himax, prompting big sell-offs and casting a shadow that seems to have affected subsequent stock performance. A skeptical tweet hasn't been the company's only problem, though.

So what

Himax's valuation has continued to slide in 2018 amid a series of ratings downgrades and indications that near-term demand for the company's 3D-imaging chips might not be as large as many industry watchers had anticipated. DIGITIMES published a report on Jan. 12 indicating that most mobile hardware makers who use Alphabet's Android operating system were forgoing the 3D-image-mapping feature used for facial recognition in Apple's latest handsets.

Himax unveiled its 3D-imaging chip for Android in February, but early signs suggested that adoption of the technology would be tepid in the short term. This prompted a round of negative ratings coverage in March, and shares have yet to rebound to pricing levels seen at the beginning of 2018.

Now what


Himax could see big upside if its 3D-imaging chips see increased adoption in Android devices, but it's unclear how that will play out and whether the facial-recognition feature is really in demand — or is sensible from a cost perspective. However, it's also possible that the company's other imaging chips will see increased demand as devices like augmented-reality headsets, smart cars, and drones gain mass-market adoption.

Shares are currently priced at roughly 122 times this year's expected earnings, so investors should proceed with the understanding that the stock looks to be a high-risk investment. Seeing big returns depends on the company winning contracts for emerging product categories — and there's currently limited visibility on that outlook.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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