Is the IQE share price the bargain of the century?

Excluding a short sharp price spike at the start of the year, the downward shock which struck IQE(LSE: IQE) at the back end of 2017 is showing no signs of letting go just yet.

Market sentiment for the business first soured as short sellers piled in as a response to the AIM company's stratospheric price rise of recent years (up 672% in the three years to the close of last December). While this is not uncommon for shares whose market values have exploded, reports from sellers like Muddy Waters, which questioned IQE's accounting procedures, have kept the pressure on.

As if this wasn't enough, appetite for the stock has been whacked by fears of steeply-declining sales to Apple. Such is the Cupertino company's dominance that even the faint whiff of falling demand from the world's most-loved tech manufacturer can break a supplier as quickly and easily as it can make one.

IQE has fallen more than 25% in 2018 alone, closed below the 100p marker in June and is teetering around this level right now. However, I reckon now could be a great time to buy into the stock as I feel investor appetite may be about to turn...

Strong numbers

IQE released a positive set of trading numbers earlier this week when it announced that sales rose to £73m during January-July. It may be only a slight improvement from the revenues of £70m experienced a year earlier, however it wasn't all that bad when achieved against a currency headwind of 9.5%.

What's more, and as Barclays Capital was quick to point out, the release showed "the second half ramp for 3D sensing components is strong after the weaker start to the year." Demand looks set to intensify again after the impact of the destocking of Apple's iPhone X parts during the early stages of 2018, with three new iPhones with 3D sensing capabilities set to ramp up during the remainder of the year.

Like I said earlier, Apple's clout has a significant bearing upon the fortunes of those up and down the supply chain. Having said that, the latest release underlined the growing clout that IQE has with other tech mammoths across the globe. Sure, sales may have disappointed in the first half, but "a very significant increase in the number and extent of our engagements with VCSEL chip customers" in the period has taken the edge off, so to speak.

The company is now engaged with 20 VCSEL chip manufacturers spanning Asia, North America and Europe, and capacity expansion at its Newport site in South Wales will give it the manufacturing clout to meet future demand.

Right now IQE deals on a forward P/E ratio of 26.3 times, sailing above the widely-regarded value territory of 15 times or below. That said, I don't think the tech titan's valuation is that demanding given that the long-term earnings outlook remains extremely encouraging.

Indeed, after IQE's predicted earnings rise of 6% in 2018, the business is expected to get back to reporting ripping profits growth with a 36% advance next year. I believe the tech marvel provides plenty of upside risk at current prices and it could prove to be a millionaire-maker in the years to come.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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