MACOM Technology Solutions Holdings (MTSI, Financial) recently experienced a daily loss of -3.49%, though it has gained 15.38% over the past three months. With an Earnings Per Share (EPS) (EPS) of 4.3, the question arises: is the stock modestly overvalued? This article embarks on a comprehensive valuation analysis to answer this question. Read on to delve into the financial intricacies of MTSI.
About MACOM Technology Solutions Holdings
MACOM Technology Solutions Holdings Inc is a leading provider of analog, digital, and mixed-signal semiconductor solutions to original equipment manufacturers and distributors. These solutions are utilized in industrial, medical, scientific, and test and measurement markets. The company's stock currently trades at $77.41, while its fair value (GF Value) stands at $61.92, suggesting a modest overvaluation. Here's a look at the income breakdown of MACOM Technology Solutions Holdings:
Understanding the GF Value
The GF Value is an exclusive GuruFocus valuation method that estimates a stock's intrinsic value based on historical trading multiples, GuruFocus adjustment factors, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair value. If the stock price significantly exceeds the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our calculations, MACOM Technology Solutions Holdings (MTSI, Financial) is modestly overvalued. The stock's current price of $77.41 per share and the market cap of $5.50 billion suggest a modest overvaluation. Given this relative overvaluation, the long-term return of MTSI's stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. MTSI has a cash-to-debt ratio of 0.97, ranking worse than 65.78% of 903 companies in the Semiconductors industry. Based on this, GuruFocus ranks MTSI's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. MTSI has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $676.20 million and Earnings Per Share (EPS) of $4.3. Its operating margin is 19.05%, which ranks better than 80.27% of 953 companies in the Semiconductors industry. Overall, the profitability of MTSI is ranked 5 out of 10, indicating fair profitability.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. MTSI's 3-year average revenue growth rate is worse than 61.1% of 874 companies in the Semiconductors industry. MTSI's 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 775 companies in the Semiconductors industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, MTSI's return on invested capital is 33.4, and its cost of capital is 11.85.
Conclusion
Overall, MTSI stock is believed to be modestly overvalued. The company's financial condition is strong and its profitability is fair. However, its growth ranks worse than 0% of 775 companies in the Semiconductors industry. To learn more about MTSI stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
