How Low Will GT Advanced Technologies Go?

Shares of GT Advanced Technologies (NAS: GTAT) hit a 52-week low today. Let's look at how it got here and whether clouds are ahead.

How it got here
It's been a rough year for the markets that GT Advanced Technologies serves, and by extension the company has suffered. The solar market and the LED market are oversupplied right now, and that means manufacturers are ordering fewer pieces of new equipment than they had to in the past.

Quarterly revenue in the fiscal third quarter fell to $153.0 million, down from $262.9 million a year ago and $217.7 million in the second quarter. Photovoltaic demand was the primary cause as solar customers cut back on spending in a rough market. The sapphire business, while promising, only made up about 20% of sales and that market has oversupply issues of its own.

GT isn't the only one suffering in the stock market. Competitors Aixtron (NAS: AIXG) and Veeco Instruments (NAS: VECO) are also struggling, although not nearly as much as GT.

GTAT Chart

GTAT data by YCharts

When compared to these companies, GT Advanced Technologies looks like a screaming buy, however. It beats both companies in three out of four valuation metrics I've provided below, and its forward P/E ratio is extremely low.




Return on Assets

Forward P/E

GT Advanced Technologies3.2         0.914.5%4.1

Source: Yahoo! Finance.

But there are still reasons to be concerned about GT's future. Margins are down, so are earnings per share, and solar tariffs on Chinese modules may backfire if China retaliates with tariffs of its own. China is GT's biggest demand market and any retaliation from China would be a huge blow to the company. This uncertainty has investors sticking to the sidelines right now.

With all of the worry, GT still has a $2.2 billion backlog and more than $300 million in cash. In fiscal 2012, the company is also expecting to post earnings of $1.45-$1.60 per share in the current fiscal year, about a quarter of its market cap.

What's next?
The value I highlighted above has to make investors at least look at GT in the solar market. It isn't as if the company has been posting losses. In fact, it has beat earnings estimates in each of the past four quarters. I think weakness in the solar market is just spilling over to the company even though it isn't struggling nearly as much as solar manufacturers.

I have my concerns. LDK Solar (NYS: LDK) , one of GT's customers, is struggling to survive, and if customers like this go by the wayside, it could free up cheap equipment for other manufacturers. The demand picture is at least murky for the next few years.

The stock is trading cheap enough for me to keep my outperform CAPScall, but be wary of buying it strictly on value. GT's stock has looked cheap for a long time and it's still underperformed the market.

Interested in reading more about GT Advanced Technologies? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

At the time this article was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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