ALGM: Ride the Downtrend with Bearish Options Strategy

The company is a global designer, developer, and fabless manufacturer of sensor integrated circuits ('ICs') and application-specific power ICs, primarily for the automotive and industrial markets. Their products include magnetic sensor ICs for measuring motion, speed, position, and current, and power ICs like motor drivers and power management ICs. The company's technologies support e-Mobility, clean energy, and automation. Key innovations include 'XtremeSense TMR' technology and isolated gate drivers ('IGDs'). They serve major automotive OEMs and industrial companies, leveraging long-term customer relationships and early collaboration in product design. The company differentiates itself through its automotive 'first' philosophy, focusing on stringent safety and reliability standards, and by offering complete IC solutions for motion control and energy-efficient systems.

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ALGM's technical outlook is decidedly bearish. The stock has experienced a significant downtrend over the past 90 days, evidenced by the closing price of $27.43 on November 4, 2025, a substantial decrease from the highs in July. The price is currently below its 21-day EMA of $29.81 and well below its 50-day SMA of $29.93, indicating persistent selling pressure. Momentum indicators reinforce this bearish view; the MACD is negative and trending further downwards, with the MACDh showing increasing negative divergence. The RSI is at 43.60, suggesting the stock is not yet oversold, leaving room for further declines. The Stochastic oscillator, while showing a slight uptick, remains subdued, and the ADX at 20.41 indicates a weak trend, but it is still trending down. Recent price action confirms the downtrend, with lower highs and lower lows. The Bollinger Bands are widening, suggesting increasing volatility as the price explores lower levels. Given these factors, a further decline in ALGM's price is likely over the next 1-3 months.

Allegro MicroSystems' MD&A presents a generally positive picture, with some areas of concern. `Total net sales` for the three-month period ended September 26, 2025, increased by 14.4% to $214.3 million, compared to $187.4 million in the prior year, driven by growth in data center, medical, industrial automation, and e-Mobility applications. `Gross profit` margin improved slightly to 46.3% from 45.7% in the same period last year, attributed to the increase in net sales and a change in product mix. For the six-month period, `total net sales` rose by 17.9% to $417.7 million, up from $354.3 million. However, `net cash provided by operating activities` increased to $82.0 million for the six-month period ended September 26, 2025, compared to $49.7 million for the six-month period ended September 27, 2024. Management states they 'believe that our existing cash will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months'. The company is strategically investing in expanding operations in China, Japan, India and the Philippines. While sales are growing, factors such as inflation and customer demand variability could impact future performance. The company acknowledges operating in an 'inflationary environment' due to global tariff policies, which could pressure gross margins if they cannot pass on cost increases.

The earnings call projects a moderately bullish outlook for Allegro MicroSystems, characterized by strong bookings and design win activity. CEO Mike Doogue highlighted 'positive momentum' across the business, noting that Q1 sales and gross margin exceeded the high end of guidance at $203 million and 48.2%, respectively. Non-GAAP EPS also beat expectations at $0.09. E-Mobility continues to be a significant growth driver, with sales up 16% sequentially and 31% year-over-year, fueled by demand for current sensors in xEV applications. The company also saw continued growth in the Industrial and Other end markets, particularly in Data Center and Robotics and Automation. CFO Derek D'Antilio anticipates Q2 sales between $205 million and $215 million, representing a 12% year-over-year increase, and non-GAAP EPS between $0.10 and $0.14. While some distributors still need select parts, D'Antilio expects sell-in to be flattish in Q2, indicating a move towards shipping to true end demand. Overall, management's tone suggests confidence in their strategic priorities and ability to capitalize on growth opportunities in key markets.

ALGM's financial performance presents a mixed but leaning bearish outlook. Revenue has fluctuated, starting at $240.6M in Q4 2024 and ending at $214.3M in Q2 2025, indicating a lack of consistent top-line growth. The gross profit ratio has also seen variability, decreasing from 0.51 in Q4 2024 to 0.46 in Q2 2025, suggesting compressing margins. While operating cash flow is only available for Q1 2026, it shows a positive cash flow of $61.6M, which is a positive signal. A significant concern is the increasing total debt, which has risen substantially from $275.2M in Q4 2024 to $287.7M in Q2 2025, indicating increased financial leverage. While Q3 2024 had a positive net income of $33.3M, more recent quarters have shown net losses or significantly reduced income. The inconsistency in profitability and increasing debt levels raise concerns about ALGM's financial stability and future performance.

The company presents a moderately bullish investment profile based on its financial data. Revenue has shown positive growth, indicating increasing market demand or successful market penetration. The gross margin is healthy, suggesting efficient cost management in production or service delivery. A strong return on equity (ROE) signals effective utilization of shareholder investments to generate profit. The price-to-earnings (P/E) ratio suggests the stock is trading at a premium, but this could be justified by the company's growth prospects and profitability. A manageable debt-to-equity ratio indicates a reasonable level of financial leverage. The current ratio, being greater than 1, demonstrates the company's ability to cover short-term liabilities with its current assets, further solidifying its financial health. Overall, the combination of revenue growth, healthy profitability metrics, and a solid balance sheet makes the company an attractive investment for the next 12 months, although the elevated P/E ratio warrants careful monitoring.