Last update on 2024-06-07

FormFactor (FORM) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

FormFactor (FORM) achieves a Piotroski F-Score of 6/9 in 2023, indicating a mixed financial health with areas of strength and opportunities for improvement.

Short Analysis - Piotroski Score: 6

We're running FormFactor (FORM) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score evaluates a company's financial health based on 9 criteria involving profitability, liquidity, and operating efficiency. FormFactor (FORM) has a Piotroski Score of 6 out of 9, indicating fairly good financial health. Positive aspects include a positive net income of $82.4 million, positive cash flow, increased return on assets, decreasing leverage, and improved current ratio. However, areas of concern are a lower operating cash flow compared to net income, declining gross margin and asset turnover.

Insights for Value Investors Seeking Stable Income

While FormFactor exhibits a good Piotroski Score of 6, signaling moderate strength, potential investors should be cautious because of declining gross margin and asset turnover. It's worth exploring the company's financial reports and market conditions further before making investment decisions.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of FormFactor (FORM)

Company has a positive net income?

Net income represents a company's profitability. Positive net income indicates financial health, while negative suggests issues.

FormFactor (FORM) achieved a net income of $82,387,000 in 2023, indicating strong profitability and financial health. Compared to previous data, especially negative figures in the late 2000s, this marks growth. Thus, it earns +1 on this criterion.

Company has a positive cash flow?

This criterion examines the trend of cash flow from operations over time, as positive operating cash flow is a critical sign of a company's financial health.

FormFactor's (FORM) cash flow from operations in 2023 is positive at $64,602,000. This is a good indicator of the company's efficient cash generation capability from its core business. Observing the historical data, we notice that the cash flow from operations has fluctuated significantly over the last 20 years, but recent years show a consistently positive trend since 2014, which is promising. As the 2023 CFO is positive, this criterion earns 1 point for the Piotroski score. Such a trend is indicative of a financial turnaround and suggests potential long-term stability and growth.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) measures how well a company uses its asset base to generate earnings. An increase in ROA is typically indicative of improved profitability.

FormFactor's ROA increased from 0.05 in 2022 to 0.0779 in 2023, warranting a score of 1 for this criterion. This improvement reflects enhanced efficiency in utilizing assets to generate profits. However, when contrasted with the industry median ROA, which stands significantly higher at 0.4919 in 2023, FormFactor’s performance is relatively subpar. The company's fluctuating operating cash flow over the past 20 years further complicates this picture, highlighting the necessity of sustainable improvements in asset utilization.

Operating Cashflow are higher than Netincome?

Operating cash flow should ideally be higher than net income, indicating strong cash generation and earnings quality.

For 2023, FormFactor's operating cash flow was $64.6 million, while its net income was $82.3 million. Since the operating cash flow is lower than the net income, we would not add a point for this criterion. This indicates that for 2023, the company’s earnings quality might be questionable as the cash generation was less than the reported net income. Historical data especially in recent years shows that the company often had an operating cash flow higher than net income in many of those years, e.g., 2020 and 2019. This dip in 2023 could potentially be a red flag and warrants closer scrutiny.

Liquidity of FormFactor (FORM)

Leverage is declining?

Change in leverage assesses the extent to which a company uses borrowed money. Decreased leverage indicates reduced financial risk and improved balance sheet stability.

By comparing leverage levels between 2022 (0.0416) and 2023 (0.0349), we observe a decrease in leverage. Despite fluctuating patterns within the last 20 years, the leverage trend in 2023 is lower, signaling an improved financial risk profile. Although the with an increase in 2023 there is betterment in the financial stability of FormFactor. The recent leverage levels notably decrease from peaks witnessed in 2016 and 2017, affirming strengthened balance sheet stability currently.

Current Ratio is growing?

Current Ratio measures a company's ability to cover short-term obligations with its short-term assets. It is an indicator of liquidity and is important for assessing the financial health and risk profile of a company.

The Current Ratio for FormFactor (FORM) has increased from 3.1707 in 2022 to 4.3768 in 2023, resulting in a one-point positive score for the Piotroski analysis. This upward trend is favorable as it suggests that FormFactor is now in a better position to meet its short-term liabilities, improving its liquidity. Additionally, FormFactor's Current Ratio consistently outperforms the industry median, which was 3.4213 in 2023. In a broader perspective, over the past 20 years, while there have been fluctuations, the company's Current Ratio has generally been higher than the industry median, indicating robust short-term financial health. This metric highlights that the company efficiently manages its liquidity, making it more resilient during economic uncertainties.

Number of shares not diluted?

The Change in Shares Outstanding criterion is crucial as it reflects the company's share issuance or buyback activity. An increase in shares suggests dilution, while a decrease implies shares are being repurchased, signaling management's confidence.

FormFactor's Outstanding Shares increased from 77,578,000 in 2022 to 77,370,000 in 2023. Therefore, 1 point is awarded for the decrease in shares. Historically, FormFactor's shares have generally increased, except for a decline from 2022 to 2023, indicating recent pros to investors.

Operating of FormFactor (FORM)

Cross Margin is growing?

This criterion assesses whether the company's gross margin has improved, indicating better cost management, pricing strategy, or operational efficiency.

FormFactor's gross margin has slightly decreased from 0.3958 in 2022 to 0.39 in 2023. This represents a decline, suggesting a potential issue with cost management or pricing strategy. Over the past 20 years, FormFactor's gross margin has fluctuated significantly, hitting a low of -0.0035 in 2009 and a high of 0.5338 in 2007. This recent decrease contrasts with the increasing trend of the industry median gross margin, which grew from 0.4299 in 2003 to 0.4919 in 2023. Consequently, no point is added for this criterion.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate revenue. Higher turnover implies improved efficiency and profitability.

Looking at the Asset Turnover for FormFactor (FORM) from 2022 to 2023, the ratio decreased from 0.7373 to 0.627. This indicates that the company was less efficient in using its assets to generate revenue in 2023. Consequently, no point is added for this criterion. Historically, the company's Asset Turnover has been volatile, with particularly low points in 2008 and 2009, and peaks in 2015 and 2017. The declining trend in recent years suggests potential operational or market challenges.