Analog Devices Moves Forward with European Expansion Plans

The risk-reward ratio for ADI seems disproportionate, however

Mar 7, 2022 at 3:16 PM

Semiconductor name Analog Devices, Inc. (NASDAQ:ADI) is sinking today, last seen down 5.2% at $148.67, despite naming Gregory Bryant as executive vice president and president of business units. Plus, the company announced last week it will invest €100 million in the next three years in ADI Catalyst, a custom-built facility for innovation and collaboration in its Ireland campus, which is expected to create 250 new jobs by 2025.

The security has had a rough last few months on the charts, as it cooled from its Nov. 22 all-time high of $191.95. The shares are today looking to close below a floor at the $152 level for the first time since May, while the 50-day moving average has been pressuring the equity lower since January. Year-to-date, Analog Devices stock has dropped 15.6%.

ADI 50 Day

At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ADI's 10-day put/call volume ratio of 2.53 stands higher than 81% of readings from the past year. This indicates puts have been picked up at a quicker-than-usual clip in the last two weeks.

Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.32 sits higher than 91% of annual readings. In other words, short-term options traders have rarely been more put-biased.

Nonetheless, the semiconductor name's trailing 12-month revenues and net income are up 51% and 5%, respectively, since 2020. ADI is also estimated to grow earnings 9.2%, and revenues 5.9% this year. The company's trailing 12-month net income is still down 14% since 2018, however.

Overall, ADI’s valuation seems to have outgrown its output following a strong post-2020 recovery. Analog Devices stock has a forward price-earnings ratio of 19.38, and notably trades at an inflated price/sales ratio of 8.36. The equity also has a weak balance sheet, with $6.82 billion in total debt, and $1.79 billion in cash. This makes the risk-reward ratio for Analog Devices stock disproportionate, with the risks weighing in more.

Follow @Schaeffers

You Don’t Need 25 Alerts -- You Need ONE You Can Trust!

That’s the idea behind Trade of the Week, Schaeffer’s newest trade alert.

Every Monday morning before the opening bell, you’ll receive a single, expertly researched trade recommendation -- built from the same proprietary research we’ve been using for over four decades.

It’s not just a signal.

It’s a plan designed for traders who are tired of jumping from alert to alert without ever finding their edge.

No juggling alerts. No switching directions mid-week. Just one clear, expertly researched trade idea -- delivered before the market even opens.

👉 JOIN RIGHT NOW FOR JUST $1 TO GET THE NEXT TRADE!