Himax Technologies, Inc. (ADR) (HIMX): Glass or No Glass, This Stock Is Just Class (But Conditions Apply)

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Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)The last three months have been simply outstanding for those who have their money invested in Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) with shares gaining more than 100% since late February. I’d expected Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) to scale great heights when I covered it in February, but its meteoric rise has me rubbing my eyes in disbelief.

At that time, Himax was trading under $3, had a trailing P/E of less than 10, and an exceptional PEG ratio of just 0.53. Cut to the present, all those metrics have inflated tremendously; except the PEG ratio which has moved to 0.48.

Himax shares have been soaring ever since a Seeking Alpha article by Mark Gomes in the beginning of March suggested that the company could be a supplier for the Google Inc (NASDAQ:GOOG) Glass. The stock has been running like a rocket ever since, driven by the euphoria around Himax due to its probable relationship with Google.

Look beyond the glass

But, there’s more to Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) than just Google Glass. Talking about a product which may or may not be successful initially, and buying shares of a company which might not draw a great deal of revenue from the novel wearable computing device is foolhardy at best. Himax’s business has already been strong without Google Inc (NASDAQ:GOOG) Glass, as I’d pointed out in February 2012 (way before rumors of a Google Glass), and it continues to be so.

Himax’s recently-reported first-quarter results reveal that it is doing well and its sunny outlook deserves more scrutiny rather than passing it off as Google Glass driven. As Fool analyst Alex Planes pointed out, Himax’s revenue and earnings improved from the year ago period and its guidance was also fantastic. Despite these positives, the stock lost its wheels for unknown reasons.

Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)’s movements are quite erratic as it has seen a few wild swings in the past three months. So, if you’re going to buy this stock, you would need to brace yourself for a bumpy ride. But, it might be worth it in the end.

The company has been improving on all fronts, be it revenue, earnings, margins, or its business. The company’s display drivers are found in a wide array of devices ranging from tablets and smartphones, to cameras, monitors, notebooks, and TVs. It’s these products that have been driving Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)’s business and they are sold in abundance, rather than something like Google Inc (NASDAQ:GOOG) Glass which isn’t sold commercially yet.

The Glass ain’t important yet, but these are

The company plies its trade in the most lucrative smartphone market in the world — China — where consumers are moving from older devices to entry-level smartphones. This has led to a solid growth in sales of Himax’s small and medium-sized drivers, which now account for 52% of its revenue, up from 43% last year.

In addition, these products are also being adopted by international customers and helped Himax post sequential revenue growth in the small and medium-sized driver business despite seasonality. But, the huge opportunity in China cannot be ignored as that market is set to grow in leaps and bounds and positively impact Himax Technologies, Inc. (ADR) (NASDAQ:HIMX).

Throw in the company’s moves to further improve its non-driver business, and Google Glass prospects would seem secondary. CMOS image sensors, touch panel controllers, power management ICs, LED drivers, etc., which are a part of the non-driver business, are also finding good traction and grew 6% from the year-ago period. Moreover, these non-driver products are leading to better margins for Himax, and the effect is there to be seen as gross margin grew to 24.6% from 22.9% last year.

Himax expects this business to grow further. Also, the company’s large panel driver business, which accounts for 34% of its revenue, is expected to get better after declining in the previous quarter. Seasonality, high customer inventory, and tepid demand for monitors led to a 16% drop in the large display driver business from last year. However, expansion of panel production capacity in China and “potential new business from Korea” (Samsung?) should help arrest some of the decline.

And as I’d mentioned above, the company sees mobile devices as a major driver of its growth. Apart from smartphones and tablets, Himax’s products are also being used in automotive displays. The company sees this as another big opportunity as it has landed design wins across the globe, which should see this business prosper.

Next, Himax also sells its drivers to Wintek, the manufacturer of touch panels for the Apple Inc. (NASDAQ:AAPL) iPhone and the iPad. Wintek had manufactured the panel for the iPad mini, and rumors suggest that it has already had a trial production for the touch panel to be used in the next iPad and it might be ramped up in the second half of the year, when Apple Inc. (NASDAQ:AAPL) is expected to refresh its lineup.

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