ON Semiconductor Corp. (NASDAQ:ON)

An analysis of valuation multiples from 2019 to 2023 reveals a significant divergence between earnings-based ratios and asset- or revenue-based ratios. While earnings and operating profit multiples experienced a sharp peak in 2020 followed by a consistent contraction, the price-to-sales and price-to-book value ratios trended generally upward over the same period, though they showed signs of stabilization or correction by 2023.

Earnings and Profitability Multiples

The Price to Earnings (P/E) and Price to Operating Profit (P/OP) ratios exhibited nearly identical trajectories. Both ratios spiked dramatically in 2020, with the P/E ratio reaching a peak of 73.60 and the P/OP ratio reaching 49.43. Following this peak, a steady downward trend is observed through 2023. By the end of 2023, the P/E ratio declined to 15.18 and the P/OP ratio to 13.06, representing the lowest levels within the five-year period. This compression suggests a significant shift in market valuation relative to the company's profitability, potentially indicating normalized growth expectations or a substantial increase in underlying earnings.

Revenue Valuation

The Price to Sales (P/S) ratio demonstrated a consistent upward trend from 2019 to 2022, rising from 1.56 to a peak of 4.17. This suggests that the market increasingly valued the company's revenue stream more highly over time. In 2023, the ratio experienced a marginal decline to 4.02, indicating a period of stabilization in revenue-based valuation.

Asset-Based Valuation

The Price to Book Value (P/BV) ratio followed a growth pattern similar to the P/S ratio, increasing from 2.60 in 2019 to a peak of 5.61 in 2022. This indicates an expansion in the premium the market was willing to pay over the accounting value of the company's assets. However, a notable correction occurred in 2023, with the ratio falling to 4.26, which aligns with the broader trend of multiple compression seen in the earnings ratios.

An examination of the valuation metrics from 2019 to 2023 reveals a significant transition from a high-growth expectation phase to a fundamentally driven valuation phase. While share prices climbed substantially through 2022, the concurrent and accelerated growth in earnings per share has led to a steady contraction of the price-to-earnings multiple.

Earnings Per Share (EPS) Growth

Earnings exhibited exponential growth over the five-year period, rising from 0.52 in 2019 to 5.11 in 2023. The most substantial acceleration occurred between 2020 and 2021, where EPS increased more than fourfold, establishing a trend of strong bottom-line expansion that persisted through the end of 2023.

Share Price Trajectory

The share price experienced a consistent upward trend from 2019 through 2022, increasing from 20.90 to a peak of 80.40. A slight reversal occurred in 2023, with the price adjusting to 77.59, suggesting a stabilization period following several years of rapid appreciation.

Price-to-Earnings (P/E) Ratio Compression

The P/E ratio peaked in 2020 at 73.60, indicating a period where market valuation significantly exceeded current earnings capacity. Following this peak, a consistent downward trend is observed, with the ratio declining to 15.18 by 2023. This compression demonstrates that the growth in earnings substantially outpaced the growth in share price, transitioning the stock's valuation from a speculative growth premium to a more conservative multiple supported by realized profitability.

The financial trajectory between 2019 and 2023 is characterized by substantial growth in both market valuation and operational efficiency, accompanied by a notable contraction in the valuation multiple during the latter part of the period.

Share Price Trends

A consistent upward trajectory was observed from 2019 through 2022, with the share price increasing from 20.90 US$ to a peak of 80.40 US$. A slight correction occurred in 2023, resulting in a year-end price of 77.59 US$, though the overall five-year gain remains significant.

Operating Profitability

Operating profit per share demonstrated strong growth following a minor dip in 2020. From a low of 0.85 US$ in 2020, the figure rose sharply to 2.98 US$ in 2021, continuing its ascent to 5.46 US$ in 2022 and reaching 5.94 US$ by the end of 2023. This indicates a robust improvement in the company's ability to generate profit from its core operations.

Price to Operating Profit (P/OP) Dynamics

The P/OP ratio exhibited significant volatility, peaking at 49.43 in 2020. This spike was the result of a rapid increase in share price that far exceeded the operational earnings of that year. From 2021 onward, a sustained compression of the multiple is evident, with the ratio falling to 19.70 in 2021, 14.72 in 2022, and 13.06 in 2023. This trend suggests that the growth in operating profit has outpaced the growth in market price, leading to a more conservative valuation of the company relative to its operational earnings.

The valuation of the company, as measured by the Price to Sales (P/S) ratio, exhibited a strong upward trajectory between 2019 and 2022, followed by a period of relative stabilization in 2023.

Price to Sales (P/S) Ratio Trend

The P/S ratio increased from 1.56 in 2019 to a peak of 4.17 in 2022. This represents a significant expansion in the multiple investors were willing to pay for each dollar of revenue, indicating a substantial re-rating of the company's market valuation over this four-year period.

Share Price Dynamics

The share price experienced aggressive growth, rising from $20.90 in 2019 to $80.40 in 2022. The rate of increase in the share price significantly outpaced the growth of sales per share, which served as the primary catalyst for the expansion of the P/S ratio.

Sales per Share Performance

Sales per share showed a slight contraction in 2020, falling to $12.76, before entering a consistent growth phase. Revenue per share grew to $19.31 by 2023. While the top-line growth provided a fundamental basis for the share price increase, the widening gap between sales growth and price growth highlights a shift in investor sentiment toward higher valuation multiples.

By the end of 2023, a marginal contraction in the P/S ratio to 4.02 was observed. This coincided with a slight decline in the share price to $77.59 and a plateau in sales per share, which remained nearly flat compared to the previous year. This suggests that the period of rapid valuation expansion concluded in 2022, transitioning into a phase of consolidation.

Analysis of the five-year period reveals a strong expansion in both market valuation and underlying equity, characterized by a significant increase in market premium that peaked in 2022 before undergoing a correction in 2023.

Share Price Trends

A consistent upward trajectory is observed from 2019 through 2022, with the price rising from 20.90 USD to a peak of 80.40 USD. A slight contraction occurred in 2023, resulting in a year-end price of 77.59 USD.

Book Value per Share (BVPS) Growth

The book value per share demonstrated uninterrupted growth throughout the analyzed period. Starting at 8.03 USD in 2019, the BVPS rose to 18.21 USD by the end of 2023, indicating a steady strengthening of the company's net asset position.

Price to Book Value (P/BV) Ratio Evolution

The P/BV ratio experienced a sharp increase from 2.60 in 2019 to 4.87 in 2020, signaling a rapid expansion in market valuation relative to assets. The ratio remained elevated and reached a peak of 5.61 in 2022. In 2023, a contraction to 4.26 was recorded, driven by the confluence of a declining share price and a continuing increase in the book value per share.