Monolithic power systems: no signs of slowing down

Sleader in the semiconductor industry Monolithic Power Systems (MPWR) develops and markets high-performance power solutions.

In particular, Monolithic uses its deep system and application level expertise to develop highly integrated monolithic systems used in the computing and storage, automotive, industrial, communications and large application sectors. audience.

Monolithic’s value proposition to its customers includes reducing the total energy consumption required for complex calculations with green, practical and consolidated solutions.

Monolithic’s top and bottom results have snowballed over the past few years. Its five-year revenue and five-year net revenue CAGR (compound annual growth rates) are 26.9% and 37.3%, respectively. Results were primarily driven by the ever-increasing demand for efficient analog semiconductor solutions, robust pricing power on Monolithic’s side and continued product innovation.

Amid excellent financials, Monolithic’s shares have returned around 365% from the stock’s stock alone over that five-year period. While the company’s performance remains quite impressive, Monolithic shares have been carried away by the ongoing market sell-off. The stock is down about 21% from its 52-week high in November.

Given Monolithic’s robust performance, bullish outlook and more reasonable valuation than before, I remain bullish on the stock.

Robust growth momentum

Monolithic Power’s latest results continued to impress, with revenue up 48.4% year-over-year to $371.71 million. In fact, revenue growth accelerated from 44.4% in the prior quarter. Revenue growth was supported by the company’s diversified growth strategy, persistent innovation, investment in production capacity and excellent market conditions.

Although one would assume that the ongoing macroeconomic challenges would negatively impact the company’s results, demand for semiconductors remains robust.

Additionally, while permanent supply chain bottlenecks are not necessarily helpful to the business, they do give it very strong pricing power. More importantly, the company also recorded large-scale market share gains.

Among the company’s best-performing segments were storage and computing, whose revenue grew 88.1% to $96.5 million. Enterprise data revenue was also impressive, as it jumped to $42.5 million, suggesting a 163% increase over the prior year period.

In terms of profitability, following enthusiastic top line growth, adjusted EPS soared 66.6% to $2.55. The growth in Adjusted EPS is primarily the result of increased production efficiencies through economies of scale as the company adapts its business model. Specifically, gross margins were 57.9%, a notable expansion from 55.4% last year.

Following exceptional market momentum, Monolithic’s management expects the company’s second quarter revenue to be between $420 million and $440 million. The midpoint of this outlook suggests year-over-year growth of 46.6%, implying that Monolithic’s growth shows no signs of slowing.

Based on management guidance, current market conditions, and Monolithic’s expanding margins, my estimates point to FY2022 Adjusted EPS of at least $11.00.

Is the stock fairly valued?

To value Monolithic fairly, investors should use the company’s adjusted EPS metric. Adjusted EPS, in the case of Monolithic, is a more meaningful performance measure compared to GAAP EPS, as the company records high levels of stock-based compensation.

Based on my FY2022 forecast of at least $11.00 Adjusted EPS, the stock’s forward P/E is around 41.4. On the one hand, it’s definitely not a cheap multiple, especially since it’s been adjusted for stock-based compensation in the first place. On the other hand, among the many catalysts put in place to drive the company’s performance in the future, I think it is also justified.

In fact, analysts expect Monolithic to continue growing its adjusted EPS by a CAGR of at least 20% through 2025. Therefore, Monolithic is expected to reach its valuation sooner rather than later.

Monolithic’s explosive adjusted EPS growth over the medium term is also indirectly signaled by the company’s aggressive dividend increases. In February, Monolithic increased its dividend by 25% to a quarterly rate of $0.75. Notably, the increase implied an acceleration from the last increase, which was 20%.

In my view, Monolithic shares are relatively fairly priced, as projected EPS growth should offset any multiple squeeze risk.

The Taking of Wall Street

As far as Wall Street is concerned, Monolithic Power has a strong buy consensus rating based on the seven unanimous buys assigned over the past three months. At $556.86, the average stock forecast for Monolithic Power implies 22.2% upside potential.

Monolithic power systems: no signs of slowing down

Key takeaway for investors

Monolithic Power has delivered stunning results over the past few years, with its latest quarterly results showing accelerated revenue growth. Demand and backlog levels for its products remain strong. In fact, the only ingredient currently limiting Monolithic is its own ability to produce more.

Alongside constant product innovation, the sales growth momentum should be well supported. Along with expanding margins through economies of scale, profitability should also continue to snowball.

Following the stock’s recent correction, stocks look reasonably priced. While the current P/E is certainly not humble, the company’s projected EPS – which should be fueled by the aforementioned catalysts – remains very promising, thus justifying the current valuation. As a result, I remain bullish on the stock.

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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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