The iPhone giveth, the iPhone taketh away.
Shares in GT Advanced Technologies are off 14.46% after Wednesday's close, one day after they started plunging about 10 minutes into Apple’s (AAPL) highly anticipated product launch yesterday. Why? Because the iPhone 6 won’t be made with the sapphire-coated display that GT Advanced has an exclusive contract with Apple to make.
"There was a chance that Apple would announce Sapphire displays in their new iPhones, and [Apple] has decided not to go that route," said CEO of Capital Market Laboratories Ophir Gottlieb.
The plunge comes during a year where GTAT had nearly doubled its stock price prior to the bad news, so the sting’s likely somewhat dissipated for investors, but the company’s free fall could continue if too many investors believe the company’s too dependent on this single revenue stream.
That Whooshing Sound Was Every Analyst Bailing at Once
The hit has resulted in a two-day plunge in the company’s stock that has eaten up nearly a quarter of its market cap. Wednesday’s sell-off was further boosted by news that a wave of analysts had issued subsequent downgrades to reflect a newfound reality for GTAT.
Goldman Sachs downgraded the stock from “buy” to “neutral” and cut its price target from $20 to $14, Piper Jaffray went to “neutral” from “overweight” and cut its price target from $23 to $16, Canaccord Genuity maintained its hold but cut its price target from $16 to $13, Cowen went from $19 to $18, and Dougherty & Co really took the cake when they downgraded the stock from “buy” all the way to “sell” and cut its price target from $29 all the way down to just $9.
On the whole, it appears as though the Street views GTAT as being extremely dependent on Apple for it to continue to be profitable. It also appears to be at least a tacit endorsement of the belief that the Apple Watch isn’t going to be a huge hit as the watch will be featuring a sapphire display (though, it is worth noting that the much smaller screen factors in).
GTAT On a Downward Slide
GTAT is actually a pretty diversified company in some ways. The company actually used to be called GT Solar ($SOLR) and was primarily engaged in solar equipment technology until 2011 when it rebranded itself and moved downstream. It’s now engaged in a variety of market activities, including as a materials supplier. Its product offerings range include polysilicon equipment, silicon carbide electronics, and advanced thermal processing systems.
But, for those of you thinking people might be unfairly tying too much of GTAT’s prospects to its relationship with Apple, it might be worth taking a quick look at its annual returns for the last few years. In fact, GTAT has suffered something of a collapse in its revenue.
Certainly, much of this can be attributed to the collapse of the domestic solar industry in 2011 when cheap Chinese solar panels created something of a doomsday scenario for major solar players and precipitated a complete collapse in solar stocks. In fact, it was the rug getting pulled out from under the solar industry that prompted GTAT’s rebranding and diversification.
But before you start pondering how a growing solar industry might help GTAT recover its lost revenue, it might be worth noting that 2013, really the best year the solar industry has ever had, saw GTAT’s worst revenue and profit figures in four years.
What’s the Future?
It’s hard to know where GTAT is headed. Certainly, if their Apple business dries up it’s probably not a good thing. But the GTAT bulls feel confident that the company has strong offerings in the solar materials field that should ensure that GTAT won’t be a one-trick pony.
Either way, for the time being, GTAT’s stock chart doesn’t look pretty. The big sell-off took it below a support level at about $13 that had previously bounced shares back up twice this year. And, even before the iPhone6 announcement, the stock’s MACD line had crossed its signal line from above.
For now, GTAT investors can hope that value investors start to smell a deal. The company’s 14-day RSI has now pushed into oversold territory, and if enough people decide the company’s got enough other things going on, there’s chance investors might see an opportunity in this sell-off.
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