Allegro MicroSystems (ALGM) with a small but unusual trade this week as 4500 September $25 puts sold to open for $0.25 to $0.30, not a large trade but a small cap Semiconductor from last November that I have been wanting to look at closer. ALGM broke out of a long weekly base in early August and retesting that level this week, and a measured move target to $33.

Allegro MicroSystems is a leading global designer, developer, fabless manufacturer and marketer of sensor ICs and application-specific analog power ICs enabling the most important emerging technologies in the automotive and industrial markets. Its sensor ICs enable our customers to precisely measure motion, speed, position and current, while its power ICs include high-temperature and high-voltage capable motor driver, power management and LED driver ICs. Its acquired photonics portfolio provides eye-safe distance measurement and 3D imaging solutions.

Based on industry forecasts, ALGM believes its total available market from 2020 to 2024 will increase from approximately $14.7 billion in 2020 to $20.0 billion in 2024, a CAGR of 8.0%. The magnetic sensor IC market is expected to be a $1.9 billion market in 2020, and is expected to grow into a $2.9 billion market by 2024, representing a CAGR of 11.3%. The addressable power IC market, which according to Omdia research is expected to be a $12.9 billion market in 2020, is expected to grow into a $17.2 billion market by 2024, representing a CAGR of 7.5%. The photonic and 3D Sensing components address the rapidly-growing global LiDAR market with the automotive LiDAR market set to grow from $139 million in 2020 to approximately $6.8 billion in 2032, representing a CAGR of 38%.

ALGM sees growth opportunities in key Automotive trends like EV’s and ADAS, Industrial trends like Smart Factories and Energy Efficiency, and also sees potential for its motor driver and current sensor ICs to gain market shares in Data Centers.

ALGM has a market cap of $5.2B and trades 32.1X Earnings, 6.7X EV/Sales and 60X FCF with revenues seen rising 28% in 2022 and 7% in 2023 with EBITDA growth of 50% and 10.6% respectively. ALGM has steadily been improving its gross margins to 51% from 40%. In respect to Automotive ALGM notes on its latest earnings call “Revenue increased sequentially across all our Automotive end markets with both ADAS and xEV revenue up nearly 80% year-over-year. Customers are awarding Allegro design wins in these 2 high-growth areas at a faster rate than ever before, providing us with a strong foundation for continued growth.” ALGM is expanding into new areas and generating a lot of key new design wins.

In closing, ALGM is likely to be a long-term winner in Semiconductors for its strong positioning to capture key trends in Automotive, and its $5B market cap could attract a strategic buyer.