The semiconductor industry is the backbone of modern tech innovation, and global sales hit a record $55.3 billion in September, according to the Semiconductor Industry Association (SIA) - marking the highest monthly total ever, and underscoring the industry’s indispensable role in driving advancements from artificial intelligence (AI) to electric vehicles (EVs). Amid this booming landscape, Allegro MicroSystems, Inc. (ALGM) emerges as a powerhouse, leveraging its sensor and power solutions expertise.
Although its shares have tumbled over the past year, recent insider buys seem to signal strong internal belief in the company’s prospects. Widely followed by investors, insider buying activity is often viewed as a bullish vote of confidence, suggesting that Allegro stock may be worth considering at current levels.
Plus, with Allegro’s innovation in energy-efficient tech and a solid position in the growing EV market, analysts are optimistic about its long-term growth prospects. To that end, let’s see whether investors should follow the insiders’ lead and buy the dip in this semiconductor stock.
About Allegro MicroSystems Stock
Founded in 1990, Allegro MicroSystems, Inc. (ALGM) designs, develops, manufactures, and markets sensor integrated circuits (ICs) and application-specific analog power ICs for motion control and energy-efficient systems. From magnetic sensor ICs to power ICs driving motors and LEDs, Allegro fuels innovation in automotive and industrial markets worldwide. With a $3.8 billion market cap and a presence spanning the Americas to Asia, Allegro’s creations combine energy efficiency with cutting-edge control.
Shares of the semiconductor powerhouse have underperformed this year, plunging 29.6% YTD. However, the trend has shifted recently, with ALGM up more than 11% over the past week.
This July, Allegro strategically reshaped its ownership, repurchasing 39 million shares from Sanken. The move reduced Sanken’s stake from 51% to 33%, boosted Allegro’s public float by 30%, and lowered its outstanding shares from 194 million to 184 million. With Sanken reimbursing all transaction costs and adding a $35 million facilitation fee, Allegro solidified its market position and shareholder value.
As for valuation, Allegro trades at 3.53 times sales, a touch above the sector average but still far below its historical average of 5.51x.
Allegro’s Q2 Earnings Beats Forecasts
Allegro reported its fiscal 2025 Q2 earnings results on Oct. 31, generating total net sales of $187.4 million, which edged up 12% sequentially. Its adjusted earnings rose 166.7% quarter-over-quarter to $0.08 per share, smashing estimates.
The company ended Q2 with $200 million in cash and $400 million in term loans. Operational cash flow was $16 million, while capex stood at $10 million, with adjusted free cash flow of $5.6 million. Working capital improved, with DSO at 37 days and inventory days down to 158.
The chip designer is making significant strides, securing major design wins, including a key project with a top Japanese OEM for a PHEV inverter and another for clean energy smart metering. China’s sales rose by 26%, with shipments back on track and Allegro’s localizing production there set to launch new parts by year-end. Allegro’s focus remains on growth, with a clear path of product innovation and leadership, as it anticipates a market demand recovery in 2025.
For fiscal Q3, Allegro’s outlook is solid, with net sales expected between $170 million and $180 million. This guidance reflects steady progress in vehicle electrification and inventory rebalancing, plus the usual seasonal lift in December.
Non-GAAP gross margin is forecast to land between 49% and 51%, with adjusted EPS between $0.04 and $0.08, signaling continued resilience as Allegro navigates shifting industry currents.
ALGM Insider Buys After a Year
With ALGM currently down 35% from its 52-week-high, the dip is looking like an opportunity for Allegro’s top executives, who are betting big on the company’s future.
On Nov. 5, President and CEO Vineet Nargolwala scooped up 5,000 shares, dropping $99,446 and now owning a 0.19% stake. This is the CEO’s first purchase since November 2023, when he bought roughly $27,000 worth of stock.
Not far behind, Senior VP and CTO Michael Doogue made his move on Nov. 18, buying 15,000 shares at $19 each. A company veteran since 1998, Doogue has been awarded shares before, and holds a total stake worth over 308,000 shares, but this appears to be the CTO’s first outright purchase of ALGM stock since the company went public in 2020.
What Do Analysts Expect for Allegro Stock?
On Nov. 7, Morgan Stanley analyst Joseph Moore pegged ALGM with an "Equal-Weight" rating and a $21 price target. The analyst warns of challenges ahead, with the automotive chip market slowing down, especially for EVs and combustion engines.
Wells Fargo was more bullish Friday, starting coverage at “Overweight” with a $23 price target.
"While semi demand continues to bounce along the bottom, we think Allegro's competitive position can drive a re-acceleration in its eMobility growth via magnetic sensor content expansion in both [internal combustion engines and battery electric vehicles]," wrote analyst Joe Quatrochi in a note to clients.
ALGM stock has a consensus “Strong Buy” rating overall, with an average price target of $29 - suggesting additional upside potential of about 36%.
