With a daily gain of 2.58% and a substantial 3-month gain of 27.98%, Monolithic Power Systems Inc (MPWR, Financial) has been making waves in the market. The company boasts an impressive Earnings Per Share (EPS) of 9.32, raising the question: Is the stock modestly undervalued? This article aims to provide a comprehensive valuation analysis of Monolithic Power Systems. Read on to discover more about the intrinsic value and future prospects of this semiconductor giant.
Company Snapshot: Monolithic Power Systems Inc (MPWR, Financial)
Monolithic Power Systems is an analog and mixed-signal chipmaker, specializing in power management solutions. The firm's mission is to reduce total energy consumption in end systems, serving the computing, automotive, industrial, communications, and consumer end markets. Monolithic Power Systems employs a fabless manufacturing model, partnering with third-party chip foundries to host its proprietary BCD process technology.
At its current price of $515.15 per share, Monolithic Power Systems has a market cap of $24.60 billion. However, the GF Value, an estimate of the stock's fair value, stands at $666.38. This disparity suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. This calculation is based on three factors: historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
Monolithic Power Systems (MPWR, Financial) stock appears to be modestly undervalued based on the GF Value calculation. Given this undervaluation, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength: A Key Consideration
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage can provide valuable insights into a company's financial health. Monolithic Power Systems has no debt. This, combined with an overall financial strength score of 10 out of 10, indicates that Monolithic Power Systems is financially robust.
Profitability and Growth: The Driving Forces
Consistent profitability reduces investment risk and typically indicates a better investment compared to companies with lower profit margins. Monolithic Power Systems has been profitable for 10 out of the past 10 years, with a revenue of $1.80 billion and Earnings Per Share (EPS) of $9.32 over the past twelve months. Its operating margin of 28.72% ranks better than 91.96% of companies in the Semiconductors industry, indicating strong profitability.
Growth is a vital factor in company valuation. A faster-growing company creates more value for shareholders, particularly if the growth is profitable. Monolithic Power Systems' 3-year average annual revenue growth is 39.3%, ranking better than 90.99% of companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 65.3%, ranking better than 87.66% of companies in the industry.
ROIC vs WACC: A Profitability Indicator
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. When the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Monolithic Power Systems' ROIC was 42.26, while its WACC was 10.46.
Conclusion: Unveiling the Value of Monolithic Power Systems
Overall, Monolithic Power Systems (MPWR, Financial) stock appears to be modestly undervalued. The company's financial condition is robust, and its profitability is strong. Its growth ranks better than 87.66% of companies in the Semiconductors industry. To delve deeper into Monolithic Power Systems' stock, check out its 30-Year Financials here.
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