Lattice Semiconductor has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 9.5% to $66.30 per share while the index has gained 10.3%.

Is there a buying opportunity in Lattice Semiconductor, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is Lattice Semiconductor Not Exciting?

We don't have much confidence in Lattice Semiconductor. Here are three reasons you should be careful with LSCC and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Lattice Semiconductor’s 4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the semiconductor sector. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

2. Shrinking Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Analyzing the trend in its profitability, Lattice Semiconductor’s operating margin decreased by 15 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Lattice Semiconductor’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was 1.4%.

3. EPS Barely Growing

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Lattice Semiconductor’s unimpressive 5.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Final Judgment

Lattice Semiconductor’s business quality ultimately falls short of our standards. That said, the stock currently trades at 52.3× forward P/E (or $66.30 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

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