Last year, the share-price action was all up for advanced wafer products manufacturer IQE (LSE: IQE), but during 2018 that progress has been unwinding. Last weekâs half-year results didnât do anything to stop the slide and today, the shares are down again continuing a negative trend that seems to be well bedded in.
Irrational exuberance?
Although the directors remain optimistic about the outlook, we’re not yet seeing the robust revenue and profit advances that are needed to sustain a powerful uptrend in the shares. The reported 4% increase in revenue and more than 50% plunge in post-tax earnings donât cut it. And thereâs no solace in the firmâs recent record on cash generation from operations, which is pedestrian at best. I reckon we saw a bit of irrational exuberance from investors who drove the shares up last year. This year, we are seeing the shorters out in force.
I wouldnât buy shares in IQE right now, but I’m interested in what has been a fantastic performance on the stock market from technology-based communications services provider Gamma Communications (LSE: GAMA). Over the last three years the stock is up more than 200%, driven by decent operational progress fuelling rising revenue, earnings and cash flow. During that period the valuation has risen to reflect the resilience of the firmâs emerging growth profile and thatâs enhanced the uptrend in the shares. Which just goes to show what can happen when a growth strategy clicks and shows in the financial results. That’s what IQE is missing.
Trading very well indeed
Todayâs half-year figures from Gamma Communications continue the good news. Revenue increased a little over 18% compared to the equivalent period a year ago, cash from operations shot up a mighty 66% or so, and adjusted earnings per share moved almost 29% higher. The directors expressed their confidence in the outlook by pushing up the interim dividend nearly 11%. This is what we want, and the share price is up more than 6% today, as I write.
The firm describes itself as a ârapidly growing, technology based, provider of communications services to the business marketâ and uses its own intellectual property to design and provide services such as Cloud PBX, Inbound Call Control and SIP Trunking, which meet the “increasingly complexâ voice, data and mobility requirements of businesses. On top of that, Gamma provides business-grade mobile and data services and has a âsubstantialâ voice service capability.  Much of the firmâs financial success has been driven by monthly repeating revenues, which leads to attractive and stable incoming cash flow.
Looking forward, the directors are âenthusiasticâ about the outlook for the rest of 2018 and beyond and growth remains on the agenda. New product launches and ongoing development activity look set to keep the company moving forward and City analysts following the firm predict double-digit advances in earnings for 2018 and 2019 in the low- to mid-teens. I think the firmâs ongoing growth prospects make the stock well worth your research time right now.