Ferroglobe Will Get a Big Lift From Demand For Silcon Wafers

Investors in Ferroglobe (NASDAQ:GSM) are used to volatility. But you’d forgive them if they bailed on the stock. The silicon miner’s stock cratered in 2018 and has been a lackluster play. GSM stock was even in danger of being delisted at one point in 2020.

But the last six months have brought a renaissance for the company. Ferroglobe stock is up 627% in that time frame. And at $3.49 per share as of this writing, GSM is at a level that investors haven’t seen since late 2018.

But at that time, the stock was a falling knife. Now it has a couple of catalysts. The first is an expectation that demand for solar panels will increase due to the Biden administration’s renewed focus on clean energy.

Ferroglobe is a global miner of silicon and specialty metals. The company has been  affected by lower commodity prices. But investors are anticipating that the company may benefit from higher prices.

And those higher prices are likely to come from an increasing demand for the silcon wafers that are used by semiconductor companies.

Solar Grade Silicon Should Be In High Demand

Ferroglobe is known for producing solar grade silicon. The company uses a “unique process with a carbon footprint nearly 50% lower than standard Siemens polysilicon process.”

The silicon is used in the production of solar power cell wafers. In 2018, the company announced a successful test of silicon wafers that were produced with the company’s solar grade silicon metal.

However investors should avoid believing that Ferroglobe will only be a renewable energy play. In 2019, the semiconductor silicon wafer market was valued at $9.85 billion. According to Report Linker, demand for silicon wafers is expected to reach $13.64 biliion by 2025 with a compound annual growth rate of 6.18% during that time.

As most investors are aware, there is a global semiconductor shortage. Yet demand for the chips is only going to increase. Right now, the chips power most of the current, and future, technology that is coming out of the tech sector.

This is confirmed by the Semiconductor Equipment and Materials International (SEMI) forecast which forecasts silicon wafer shipments for semiconductor applications to exceed 17.6 million square inches by 2025.

Investors Were Underwhelmed by Earnings

GSM stock would even be higher today, but the stock fell sharply after the company delivered its fourth quarter and full-year earnings report on March 1. This is a case of elevated expectations because the report wasn’t terrible.

Revenue for the quarter came in at $320.5 million which was down from the $376.6 million the company delivered the year prior. However, considering the effects of the pandemic, that would seem to be expected.

By other metrics, the company performed well. The company’s net loss shrunk on a year-over-year basis. And the company reported positive free cash flow for the year of $122 million with $339 million of working capital. The company had a cash balance of $132 million and total net debt of $341.1 million.

Ferroglobe Looks Like a Risk Worth Taking

Ferroglobe is not yet profitable. However, they are not a pre-revenue company. And last year’s full-year loss per share of $1.13 was better than the $1.66 loss per share from 2019.