VIAC

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29.58
USD
-17.81%
29.58
USD
-17.81%
27.84 101.97
52 weeks
52 weeks

Mkt Cap 17.95B

Shares Out 606.71M

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Monolithic Power Systems: No Signs of Slowing Down

Semiconductor industry leader Monolithic Power Systems (MPWR) develops and markets high-performance power solutions. In particular, Monolithic employs its deep system-level and applications expertise to develop highly integrated monolithic systems utilized in the computing and storage, automotive, industrial, communications, and consumer applications industries. Monolithic's value proposition to its clients includes lowering the total energy consumption needed for complex computations with green, practical, and consolidated solutions. Monolithic's top and bottom lines have been snowballing over the past several years. Its five-year revenue and five-year net income CAGRs (compound annual growth rates) stand at 26.9% and 37.3%, respectively. Results have mainly been driven by the ever-growing demand for efficient analog semiconductor solutions, robust pricing power from the side of Monolithic, and continuous product innovation. Amid excellent financials, shares of Monolithic have produced a return of about 365% from the stock's application alone during this five-year period. While the company's performance remains quite impressive, shares of Monolithic have been carried away from the ongoing market selloff. The stock is down about 21% from its 52-week highs back in November. Considering Monolithic's robust performance, optimistic guidance, and a valuation that is more reasonable than before, I remain bullish on the stock. Robust Growth Momentum Monolithic Power's latest results continued to impress, with revenues rising by 48.4% year-over-year to $371.71 million. In fact, revenue growth accelerated from the previous quarter's 44.4%. Revenue growth was supported by the company's diversified growth strategy, persistent innovation, investment in production capacity, and excellent market conditions. While one could assume that the ongoing macroeconomic-related challenges would negatively impact the company's results, demand for semiconductors remains robust. Further, while the ongoing supply-chain bottlenecks are not necessarily helpful for the company, it provides it with very strong pricing power. More importantly, the company recorded broad-based market share gains as well. Among the company's best-performing segments were Storage and Computing, whose revenues grew 88.1% to $96.5 million. Enterprise Data revenues were also impressive, as they jumped to $42.5 million, suggesting an increase of 163% versus the prior-year period. As far as profitability goes, following the top line's enthusiastic growth, adjusted EPS skyrocketed 66.6% to $2.55. The growth in adjusted EPS was primarily the result of increased production efficiencies driven by economies of scale as the company scales its business model. Specifically, gross margins came in at 57.9%, recording a noteworthy expansion from last year's 55.4%. Following outstanding market dynamics, Monolithic's management expects the company's Q2 revenues to land within the range of $420 million to $440 million. The midpoint of this outlook suggests year-over-year growth of 46.6%, implying Monolithic's growth shows no signs of slowing down. Based on management's guidance, the present market conditions, and Monolithic's expanding margins, my estimations point toward a Fiscal 2022 adjusted EPS of at least $11.00. Is the Stock Fairly Valued? To fairly value Monolithic, investors should utilize the company's adjusted EPS metric. Adjusted EPS, in the case of Monolithic, is a more meaningful performance metric compared to GAAP EPS because the company records elevated stock-based compensation levels. According to my Fiscal 2022 forecasts of adjusted EPS of at least $11.00, the stock's forward P/E stands at around 41.4. On the one hand, this is definitely not a cheap multiple, especially considering it has been adjusted for stock-based compensation in the first place. On the other hand, amid the several catalysts set to boost the company's performance moving forward, I believe it's also justified. In fact, analysts expect that Monolithic will keep growing its adjusted EPS by a CAGR of at least 20% through 2025. Therefore, Monolithic should grow into its valuation sooner than later. Monolithic's explosive adjusted EPS growth over the medium-term is also indirectly signaled via the company's aggressive dividend increases. Back in February, Monolithic hiked its dividend by 25% to a quarterly rate of $0.75. Notably, the increase implied an acceleration from the last hike, which was by a rate of 20%. In my view, Monolithic's shares are relatively fairly valued, as the projected EPS growth should offset any multiple compression risks. Wall Street's Take Turning to Wall Street, Monolithic Power has a Strong Buy consensus rating based on the seven unanimous Buys assigned in the past three months. At $556.86, the average Monolithic Power stock forecast implies 22.2% upside potential. Investor Takeaway Monolithic Power has delivered amazing results over the past several years, with its most recent quarterly results recording accelerated revenue growth. Demand and backlog levels for its products remain robust. In fact, the only ingredient currently limiting Monolithic is its own capacity to produce more. Along with consistent product innovation, revenue growth momentum is set to be well-sustained. Along with expanding margins following economies of scale, profitability should also continue snowballing. Following the stock's recent correction, shares appear reasonably valued. While the present forward P/E is certainly not humble, the company's projected EPS - set to be powered by the aforementioned catalysts - remains very promising, thus justifying the current valuation. Accordingly, I remain bullish on the stock. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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