This Specialty Chip Stock Has Strong Earnings and Fat Margins. That Drew Short Sellers.

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Allegro MicroSystems’ stock soared—until questions about the company’s ties with its former parent and a related chip fab attracted the shorts.

Wall Street seems of two minds about Allegro MicroSystems, a New England-based chip maker whose sales to the auto industry have risen fast. Allegro stock shot up 150% to a July peak above $50, before easing back to a recent $38. Even after its retreat, the Manchester, N.H., firm’s stock fetches 37 times its operating earnings in the latest fiscal year—about twice the multiple of the S&P 500.

Specialization gives Allegro a defensible niche, says Chief Financial Officer Derek D’Antilio. “We spend all of our time focusing on innovation in magnetic sensors and a few power applications,” he says. Allegro’s unusual margins spurred some investment fund analysts to scrutinize its dealings with its related parties, Sanken and Polar. At the end of the March 2023 year, Sanken owned 51% of Allegro stock—currently worth $3.8 billion . Another 9% was owned by One Equity Partners, the private-equity firm that was once the buyout arm of JPMorgan Chase. About 17% of Allegro’s sales went to Sanken for the year ended in March 2023.

We asked D’Antilio about those concerns. “The gross margins are real,” he says. “Our P&L is a completely independent P&L.” The audit committee of Allegro’s board ensures that all related-party transactions are arms-length, says the CFO.

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