Sensata Technologies (ST)

Sensor manufacturer Sensata Technology (NYSE:ST) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 9.5% year on year to $911.3 million. Guidance for next quarter’s revenue was optimistic at $925 million at the midpoint, 2.1% above analysts’ estimates. Its non-GAAP profit of $0.78 per share was 8.3% above analysts’ consensus estimates.

Company Overview

Originally a temperature sensor control maker and a subsidiary of Texas Instruments for 60 years, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.

Sensatas peers and competitors include Analog Devices (NASDAQ:ADI), Texas Instruments (NASDAQ:TXN), Skyworks (NASDAQ:SWKS), NXP Semiconductors NV (NASDAQ:NXPI) and Monolithic Power Systems (NASDAQ:MPWR).

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Sensata Technologies’s sales grew at a sluggish 2.7% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a rough starting point for our analysis. 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. Sensata Technologies’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.7% annually.

This quarter, Sensata Technologies’s revenue fell by 9.5% year on year to $911.3 million but beat Wall Street’s estimates by 3.5%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 10.7% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 5% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

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, Sensata Technologies’s DIO came in at 94, which is 8 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

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.

Sensata Technologies’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 30.9% gross margin over the last two years. That means Sensata Technologies paid its suppliers a lot of money ($69.14 for every $100 in revenue) to run its business.

Sensata Technologies’s gross profit margin came in at 29.9% this quarter, marking a 1.6 percentage point decrease from 31.5% in the same quarter last year. Sensata Technologies’s full-year margin has also been trending down over the past 12 months, decreasing by 1.2 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Sensata Technologies was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.9% was among the worst in the semiconductor sector. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Sensata Technologies’s operating margin decreased by 10.3 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. Sensata Technologies’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Sensata Technologies generated an operating profit margin of 13.4%, 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.

Sensata Technologies’s flat EPS over the last five years was below its 2.7% annualized revenue growth. We can see the difference stemmed from higher interest expenses or taxes as the company actually grew its operating margin and repurchased its shares during this time.

Diving into the nuances of Sensata Technologies’s earnings can give us a better understanding of its performance. As we mentioned earlier, Sensata Technologies’s operating margin was flat this quarter but declined by 10.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Sensata Technologies reported EPS at $0.78, down from $0.89 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 8.3%. Over the next 12 months, Wall Street expects Sensata Technologies’s full-year EPS of $3.33 to shrink by 4.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Sensata Technologies 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 8.8%, subpar for a semiconductor business.

Taking a step back, we can see that Sensata Technologies’s margin dropped by 3.5 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its relatively low cash conversion. If the longer-term trend returns, it could signal it’s in the middle of an investment cycle.

Sensata Technologies’s free cash flow clocked in at $86.62 million in Q1, equivalent to a 9.5% margin. This result was good as its margin was 3.1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Sensata Technologies historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.8%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Sensata Technologies reported $588.1 million of cash and $3.2 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 $858 million of EBITDA over the last 12 months, we view Sensata Technologies’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $71.27 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 were impressed by how significantly Sensata Technologies blew past analysts’ EPS expectations this quarter. We were also happy its adjusted operating income outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 9% to $24.50 immediately after reporting.

Updated: May 11, 2025 at 10:16 PM EDT

Before investing in or passing on Sensata Technologies, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Sensata Technologies doesn’t pass our quality test. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Sensata Technologies’s declining operating margin shows the business has become less efficient, and its operating margins reveal poor profitability compared to other semiconductor companies.

Sensata Technologies’s P/E ratio based on the next 12 months is 8x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $32.40 on the company (compared to the current share price of $25.55).

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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