Is Transphorm Stock (TGAN) a Good Investment?

A chain is only as strong as its weakest link. Hackneyed beyond redemption, the phrase has enjoyed remarkable syndication, disseminated from the locker room to the boardroom. But what it lacks for originality it makes up for in permanent relevance, which may be the case for the scheduled uplisting of Transphorm Inc.

Specializing in advanced semiconductor technology, Transphorm broadly focuses on the efficiency of energy transfers. Admittedly a pedantic topic at first glance, the ability to maximize the conversion of raw materials into usable power could make or break the global pivot to clean and renewable energy sources.

While the headline print focuses on emerging innovations such as wind and solar energy infrastructures and the increasing integration of electric vehicles, not enough attention is paid regarding the effectiveness of said advancements. Indeed, with “analog” mechanisms such as combustion-powered cars improving in both performance and energy efficiency, the onus is on novel solutions to justify their existence and continued financial support.

Essentially, Transphorm is the specialized running shoes that elite sprinters like Usain Bolt wear to set blistering world records. Thus, investors ignore it at the possibility of missing out on an underappreciated opportunity.

What Does Transphorm Do?

A global semiconductor firm, Transphorm focuses on gallium nitride (GaN) devices for high-voltage power conversion applications. According to research published by the Institute of Electrical and Electronics Engineers, gains in performance for silicon power devices “have slowed as the technology has matured and approaches its theoretical limits.”

In contrast, GaN devices “have emerged as a possible replacement for silicon devices in various power conversion applications and as an enabler of new applications not previously possible.” This latter point is particularly important for Transphorm’s viability as an uplisted enterprise as its power conversion applications can actualize innovations that previously smashed against a technical capacity barrier.

Founded in 2007, Transphorm has attracted multiple investments and partnerships with leading international tech giants, including Fujitsu Ltd. (PINK: FJTSY) and Yaskawa Electric Corp. (PINK: YASKF).

When Did It IPO?

TGAN went live on the NASDAQ on Feb. 22, 2022 after uplisting (moving from the over-the-counter (OTC) market to an established stock exchange rather than an initial public offering).

What Analysts are Saying About TGAN

Presently supporting a market capitalization of $362 million, TGAN stock is nowhere near the most speculative investment you can own. However, as Benzinga contributor Sarah Horvath noted, small-cap stocks typically feature a market value of approximately $300 million to $3 billion. Though not set in stone, Transphorm is flirting with the lower end of this range.

As a result, TGAN stock doesn’t feature a robust mix of analyst opinions. Nevertheless, the opinions that are available are resoundingly positive. Of the four analysts that cover Transphorm, the average rating is a buy. Better yet, the average price target for TGAN is $10.25, more than 42% higher than the $7.20 price it closed at just prior to its Nasdaq listing.

Although four is hardly a crowd, it’s not too difficult to realize why few analysts have publicly disseminated negative commentary on Transphorm’s prospects. According to Inside Energy, a significant amount of potential energy is lost in the total supply chain originating from resource extraction and ending in commercial and residential power distribution.

For instance, in the upstream segment of energy resource extraction, the laws of thermodynamics — particularly relating to the concept of entropy — only allow two-thirds of the energy in raw materials to transfer to the power grid in the form of usable electricity.

Further, distributing stored electricity to end users results in further energy loss. Unlike the fictional city of Springfield that The Simpsons brought to fame, most people don’t live right next to a power plant. Instead, extracted energy must travel across many miles to reach its ultimate destination. In total (from transmission and distribution), this movement comes at a 6% loss of energy.

But thanks to Transphorm’s research and development in GaN-based applications, the company can essentially extract a refund from the rounding errors that permeate all transfers of electrical power. Thus, as Transphorm’s press release states, its innovations can mitigate wasted energy in various functionalities — “be it a mobile or laptop charger, an electric vehicle drive train or charger, storage and retrieval of energy in battery banks, renewable energy, motion control and robotics.”

Financial History

Although the narrative undergirding Transphorm is undoubtedly compelling, prospective investors must conduct a thorough analysis of the company’s financials. It’s here where unbridled optimism gets a necessary splash of cold water.

With Transphorm specifically, the main positive is its growth trajectory. Following an understandably ho-hum performance in 2020, the company generated revenue of $21.6 million. No, it’s not a staggeringly impressive haul, but it’s nearly double what the semiconductor firm was able to produce in 2019 ($11.93 million) and 2020 ($11.4 million).

The bottom line, though, is where prospective investors must direct their focus. On one hand, the company is currently struggling with profitability, pinging net losses in the last three years. But on the other hand, in 2021, Transphorm significantly pared those losses. As well, in the third quarter of 2021, it managed to generate positive net income of $6 million and rising throughout 2022 and 2023.

Currently, Transphorm is in the thick of the GaN Revolution with a vertically-integrated business model that leverages the industry’s most experienced GaN engineering team for design, fabrication, device and application support. This has resulted in one of the industry’s largest portfolios of intellectual property, with over 1,000 patents and the only JEDEC- and AEC-Q101-qualified GaN FETs.

Future Potential

While electricity is the same the world over, not too many people realize that gross disparities exist in electric power transmission and distribution losses. For instance, while the U.S. sees an average of 6% energy loss through transmission and distribution, Albania suffers a 24% loss. That’s a staggering delta, suggesting that Transphorm’s technology and applications should command a vast total addressable market.

But the flipside to the above argument is again geopolitical headwinds. China produces more than 95% of the world’s raw gallium. Not surprisingly, the U.S. government labeled gallium as one of the 35 elements which represent a national security concern.

Therefore, the conflict in Ukraine is hardly an isolated issue. Since Russia and China have forged closer ties, it’s well within reason that a tepid response to the former’s aggression could inspire the latter to invade Taiwan, possibly sparking a global catastrophe.

Where to Buy TGAN

Interested participants must acquire Transphorm shares at the open, necessitating knowing how to buy stocks. This action is easier than ever thanks to the rise of connected technologies, resulting in the best brokers below.