Should you buy Semtech shares in September 2021 after record Q2 results?

On Thursday, Semtech Corp (NASDAQ:SMTC) shares surged more than 7% after announcing its most recent quarterly results. The company reported its fiscal Q2 revenue and earnings Wednesday after markets closed, beating analyst expectations.

The company posted non-GAAP Q2 earnings per share of $0.65, outperforming the consensus Street estimate of $0.62. Moreover, the GAAP EPS of $0.50 also beat estimates of $0.47, while revenue for the quarter grew 28.8% year-over-year to $185 million, $2.11 million better than the average of analyst expectations.

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The company also issued a better-than-expected non-GAAP Q3 EPS of $0.68-$0.76, significantly higher than the current consensus Street forecast of $0.47.

A look at SMTC’s exciting growth potential

Although SMTC shares seem steeply valued at a price-earnings ratio of 63.53, its forward P/E of 24.61, indicates significant potential for earnings growth. Analysts expect the company’s bottom line to improve by a whopping 91.80% this year before rising at an annual rate of about 20% over the next five years. 

Therefore, growth investors could find Semtech stock compelling ahead of its exciting growth story. Moreover, with the company issuing better-than-expected guidance on earnings, SMTC’s EPS could post significant growth in the coming quarters, boosting the stock price.

Is a channel breakout imminent?

Technically, Semtech appears to have recently spiked to overbought conditions following Thursday’s post-earnings surge. However, the stock price is yet to break out of the ascending channel leaving room for more upward movement.

Therefore, although the stock now trades several levels above the 100-day moving average, investors could still target extended gains at about $76.01 or higher at $80.13. On the other hand, a sharp pullback could find support at $66.80 and $62.43.

Bottom line: it is not too late to buy Semtech shares

In summary, Semtech stock’s current rally has pushed shares to a steep P/E ratio. However, when we factor in earnings growth prospects for the next 12 months, the stock seems reasonably valued.

Moreover, its long-term earnings prospects could be a significant catalyst for growth. Therefore, SMTC attracts different types of investors, and this boosts the stock price.