Why Himax Technologies, Inc. Tanked on Tuesday

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Himax Technologies  slumped 16% on Tuesday after Bank of America downgraded the flat-panel chip maker from buy to underperform.

So what: Along with the two-notch downgrade, analyst Dan Heyler slashed his price target to $12.50 (from $17.58), representing about 7% worth of downside to yesterday's close. So while contrarians might be attracted to the stock's sharp pullback in recent weeks, Heyler's call could reflect strengthening skepticism on Wall Street over Himax's true growth potential.

Now what: B of A lowered its 2014 and 2015 EPS estimate for Himax by about 23% and 18%, respectively. "[C]ompeting in a number of highly competitive markets so sharp margin expansion will be difficult without a sharp ramp in [Liquid-Crystal-on-Silicon]," Heyler cautioned investors. "Mgmt is likely to move forward with capacity expansion but may not be able to fill that capacity until 2015." When you couple that operating uncertainty with the stock's 30-plus P/E and highly volatile nature, conservative investors would probably do well to heed B of A's advice. 

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The article Why Himax Technologies, Inc. Tanked on Tuesday originally appeared on Fool.com.

Brian Pacampara and The Motley Fool have no position in any stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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