So why has the share price tanked 10% after this? In truth, there is no solid answer. Oliver Knott from N+1, attributes it to “christmas profit taking”, a bit wishy washy if you ask me. A price correction on the iPhone component makers lofty P/E ratio of 43 is plausible. We have seen something similar with Boohoo recently, a superb trading update sent the share price on a long slide down 25%. However, I don’t think IQE’s 43 is extraordinarily expensive when compared to other growth star’s like Boohoo and Asos with P/Es of 83 and a staggering 104. Especially considering IQE’s intellectual property and multiyear customer contracts support a competitive earnings multiple against the two online retailers.
A more intricate factor that drags on IQE, is the dependence on iPhone sales. There were whispers in tech world of a “supercycle” of upgrades, in which everyone would rush to swap their now outdated phones to one of the latest anniversary handsets, but his hasn’t happened. So, a lot of institutional investors shorted IQE after the release of the new iPhone X, 8 and 8+ looked set to disappoint. However, some analysts argue the 6 weeks wait consumers faced to turn their heads into an animated poo emoji on the new iPhone X gave a disproportionately poor picture, and supply is now catching up with demand. Apple also have since claimed in a trading update that sales of the latest range are holding. The latest reports from Mixpanel also suggest that take up of the iPhones X since release is doing better than anticipated, despite the eyewatering £999 price tag. There’s no denying the latest generation has failed to come close to the highs of the iPhone 6 but it looks like they won’t be as bad as first thought over the medium term. Meaning these short positions, some of which held from as early as July, look outdated and somewhat obsolete.