Entegris (ENTG)

Semiconductor materials supplier Entegris (NASDAQ:ENTG) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $773.2 million. Next quarter’s revenue guidance of $755 million underwhelmed, coming in 8.4% below analysts’ estimates. Its non-GAAP profit of $0.67 per share was 2.1% below analysts’ consensus estimates.

Company Overview

With fabs representing the company’s largest customer type, Entegris (NASDAQ:ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.

Other competitors who provide materials and chemicals to semiconductor manufacturers include Pall Corporation (part of Danaher (NYSE:DHR)), Shin-Etsu Polymer (TYO:7970), Gemu Valves, and DuPont (NYSE:DD).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Entegris’s sales grew at an excellent 15% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers. 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. Entegris’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.5% over the last two years.

This quarter, Entegris’s $773.2 million of revenue was flat year on year, falling short of Wall Street’s estimates. Company management is currently guiding for a 7.1% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 7.1% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

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, Entegris’s DIO came in at 147, which is 18 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Entegris’s gross margin is slightly below the average semiconductor company, indicating its products aren’t as mission-critical as its competitors. As you can see below, it averaged a 44.4% gross margin over the last two years. That means Entegris paid its suppliers a lot of money ($55.57 for every $100 in revenue) to run its business.

This quarter, Entegris’s gross profit margin was 46.1%, in line with the same quarter last year. Zooming out, Entegris’s full-year margin has been trending up over the past 12 months, increasing by 3.1 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Entegris has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 17.3%, higher than the broader semiconductor sector.

Analyzing the trend in its profitability, Entegris’s operating margin decreased by 5.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Entegris generated an operating profit margin of 15.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Entegris’s EPS grew at an unimpressive 8.5% compounded annual growth rate over the last five years, lower than its 15% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Entegris’s earnings to better understand the drivers of its performance. As we mentioned earlier, Entegris’s operating margin was flat this quarter but declined by 5.3 percentage points over the last five years. Its share count also grew by 11.5%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Entegris reported EPS at $0.67, down from $0.68 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Entegris’s full-year EPS of $2.99 to grow 17.4%.

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.

Entegris has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.6%, subpar for a semiconductor business.

Taking a step back, we can see that Entegris’s margin dropped by 8.9 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Entegris’s free cash flow clocked in at $32.4 million in Q1, equivalent to a 4.2% margin. The company’s cash profitability regressed as it was 6.3 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

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).

Entegris historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.5%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Entegris reported $340.9 million of cash and $4.06 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $928.3 million of EBITDA over the last 12 months, we view Entegris’s 4.0× net-debt-to-EBITDA ratio as safe. We also see its $103.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its revenue guidance for next quarter missed significantly and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 6% to $78 immediately following the results.

Updated: May 16, 2025 at 10:22 PM EDT

When considering an investment in Entegris, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies solving complex technology issues, but in the case of Entegris, we’ll be cheering from the sidelines. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last five years. And while the company’s operating margins are in line with the overall semiconductor sector, the downside is its declining operating margin shows the business has become less efficient.

Entegris’s P/E ratio based on the next 12 months is 22.3x. At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $104.97 on the company (compared to the current share price of $78.74).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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