Photronics (PLAB)

Semiconductor photomask manufacturer Photronics (NASDAQ:PLAB) reported Q2 CY2025 results beating Wall Street’s revenue expectations, but sales were flat year on year at $210.4 million. On the other hand, next quarter’s revenue guidance of $205 million was less impressive, coming in 0.9% below analysts’ estimates. Its non-GAAP profit of $0.51 per share was 32.5% above analysts’ consensus estimates.

Company Overview

Sporting a global footprint of facilities, Photronics (NASDAQ:PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.

Photomask manufacturers that compete with Photonics include Compugraphics, Dai Nippon Printing (TSE:7912), Hoya Corporation (TSE:7741), LG Innotek (KOSE:A011070), and Shenzhen Newway Photomask (SHSE:688401).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Photronics’s sales grew at a mediocre 6.8% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the semiconductor sector, but there are still things to like about Photronics. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Photronics’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.1% annually.

This quarter, Photronics’s $210.4 million of revenue was flat year on year but beat Wall Street’s estimates by 3%. Adding to the positive news, Photronics’s flat sales marked an inflection from its revenue decline last quarter, news that will likely give some shareholders hope. Company management is currently guiding for a 7.9% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection is underwhelming and suggests its newer products and services will not lead to better top-line performance yet. At least the company is tracking well in other measures of financial health.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Photronics’s DIO came in at 41, which is 3 more days than its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are slightly above the long-term average.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Photronics’s gross margin is well below other semiconductor companies, indicating a lack of pricing power and a competitive market. As you can see below, it averaged a 36.2% gross margin over the last two years. Said differently, Photronics had to pay a chunky $63.82 to its suppliers for every $100 in revenue.

Photronics’s gross profit margin came in at 33.7% this quarter, down 1.9 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Photronics has been an efficient company over the last two years. It was one of the more profitable businesses in the semiconductor sector, boasting an average operating margin of 25.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Photronics’s operating margin rose by 13.3 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Photronics generated an operating margin profit margin of 22.9%, down 1.8 percentage points year on year. Since Photronics’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Photronics’s EPS grew at a remarkable 28.3% compounded annual growth rate over the last five years, higher than its 6.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Photronics’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Photronics’s operating margin declined this quarter but expanded by 13.3 percentage points over the last five years. Its share count also shrank by 11%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q2, Photronics reported adjusted EPS of $0.51, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Photronics’s full-year EPS of $2.02 to shrink by 8.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Photronics has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 13%, subpar for a semiconductor business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Photronics to make large cash investments in working capital and capital expenditures.

Photronics’s free cash flow clocked in at $25.22 million in Q2, equivalent to a 12% margin. The company’s cash profitability regressed as it was 12 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Photronics’s five-year average ROIC was 26.2%, beating other semiconductor companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

Companies with more cash than debt have lower bankruptcy risk.

Photronics is a profitable, well-capitalized company with $575.8 million of cash and $27,000 of debt on its balance sheet. This $575.8 million net cash position is 43% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Photronics beat analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter slightly missed. Overall, this print had some key positives. The stock traded up 15.4% to $25.72 immediately after reporting.

Updated: December 3, 2025 at 9:34 PM EST

Before making an investment decision, investors should account for Photronics’s business fundamentals and valuation in addition to what happened in the latest quarter.

Photronics isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s expanding operating margin shows the business has become more efficient, the downside is its low gross margins indicate some combination of pricing pressures or rising production costs.

Photronics’s P/E ratio based on the next 12 months is 12.4x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $33 on the company (compared to the current share price of $24.24).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.