Shares of semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) fell 5.1% in the morning session after a broader market downturn as the Dow fell for the third straight day amidst surging yields. The decline was influenced by stronger-than-expected December 2023 retail sales, up 0.6% from November 2023 (versus expectations for 0.4% growth), potentially challenging expectations of aggressive Federal Reserve rate cuts in 2024. This marks a shift from the more optimistic market sentiment at the end of 2023, as more market data revealed inflation is cooling. However, recent market pullbacks indicate increased uncertainty in 2024, suggesting caution as stocks might be overbought.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Lattice Semiconductor? Access our full analysis report here, it's free.
What is the market telling us:
Lattice Semiconductor's shares are quite volatile and over the last year have had 19 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 13.7% on the news that the company reported third quarter results with revenue guidance for the next quarter roughly 10% below Wall Street's expectation before the quarter was reported. Lattice explained that the weak revenue forecast was due to reduced demand in communications infrastructure in Europe as well as industrial and automotive markets in Europe and Asia. While management believes in the long-term potential for their products, they cited high interest rates as a dampener to near-term demand. Management added on the earnings call that distributor and large end customer inventories remain healthy (high inventory levels could mean fewer future orders), but the market seems somewhat skeptical.
On the other hand, revenue and EPS outperformed Wall Street's estimates, even if the beats weren't too big. Overall, the results could have been better.
Lattice Semiconductor is down 6.6% since the beginning of the year, and at $63.95 per share it is trading 34.2% below its 52-week high of $97.26 from August 2023. Investors who bought $1,000 worth of Lattice Semiconductor's shares 5 years ago would now be looking at an investment worth $8,767.
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