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Monolithic Power Systems: The Stock Is Going In Circles

Trending 1 year ago
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Monolithic Power Systems aliases MPS (NASDAQ:MPWR), a supplier of analog semiconductors, put nan finishing touches connected FY2022 pinch nan merchandise of nan latest Form-10K connected February 24. In galore ways, FY2022 was an outstanding twelvemonth for MPWR pinch galore caller records set. However, while location were tons of positives, location were besides immoderate little encouraging signs to beryllium noted. The stock, for instance, has not done each that well, contempt nan caller rally. Why will beryllium covered next.

Sunny skies pinch clouds connected nan horizon

On nan surface, location is not overmuch to kick astir successful nan latest yearly report. On nan contrary, MPWR reached caller heights successful respective areas, including gross and earnings. FY2022 gross accrued by 48.6% YoY to $1,794M, a caller grounds high. GAAP EPS accrued by 79.2% YoY to $9.05 and non-GAAP EPS accrued by 66.6% YoY to $12.41. MPWR vanished pinch rate and cash equivalents of $739.6M connected nan equilibrium sheet. The array beneath shows why FY2022 was without a uncertainty a twelvemonth for nan grounds books.

(GAAP)

FY2022

FY2021

YoY

Revenue

$1,794.148M

$1,207.798M

48.55%

Gross margin

58.4%

56.8%

160bps

Operating income

$526.785M

$262.417M

100.74%

Net income

$437.672M

$242.023M

80.84%

EPS

$9.05

$5.05

79.21%

(Non-GAAP)

Revenue

$1,794.148M

$1,207.798M

48.55%

Gross margin

58.7%

57.1%

160bps

Operating income

$680.898M

$391.064M

74.11%

Net income

$599.944M

$356.673M

68.21%

EPS

$12.41

$7.45

66.58%

Source: MPWR Form 10-K

It’s worthy mentioning that MPWR grew overmuch faster than nan industry. MPWR competes successful nan marketplace for analog semiconductors and this marketplace grew by 20.8% YoY to $89.5B successful 2022 according to WSTS, which is not moreover half of what MPWR was capable to achieve. MPWR’s FY2022 maturation complaint was much than double nan yearly maturation complaint of 23.7% successful nan past 10 years. Note that while nan semiconductor marketplace is predicted to statement by 4.1% successful 2023, nan analog marketplace is expected to grow, if only ever truthful somewhat by 1.6% YoY.

However, while nan skies are still sunny, clouds are gathering connected nan horizon. The floor plan beneath shows really MPWR has grown greatly complete nan years, particularly successful FY2020-2022. But statement really quarterly gross declined sequentially successful nan past 4th of FY2022 aft 7 consecutive increases. It remains to beryllium seen, but Q3 FY2022 could person been nan peak.

MPWR quarterly growth

Source: macrotrend.net

The array beneath shows why location is logic to judge a slowdown is underway astatine MPWR. Q4 gross accrued by 36.7% YoY to $460M, which is slower than nan gait for nan full twelvemonth and a diminution of 7.1% QoQ. GAAP EPS of $2.45 and non-GAAP EPS of $3.17 were some much than a twelvemonth ago, but little than successful nan preceding quarter.

(GAAP)

Q4 FY2022

Q3 FY2022

Q4 FY2021

QoQ

YoY

Revenue

$460.012M

$495.418M

$336.504M

(7.14%)

36.70%

Gross margin

58.2%

58.7%

57.6%

(50bps)

60bps

Operating income

$136.892M

$151.871M

$78.571M

(9.86%)

74.23%

Net income

$119.090M

$124.337M

$72.671M

(4.22%)

63.88%

EPS

$2.45

$2.57

$1.51

(4.67%)

62.25%

(Non-GAAP)

Revenue

$460.012M

$495.418M

$336.504M

(7.14%)

36.70%

Gross margin

58.5%

59.0%

57.9%

(50bps)

60bps

Operating income

$174.140M

$193.696M

$111.976M

(10.10%)

55.52%

Net income

$154.005M

$170.653M

$102.099M

(9.76%)

50.84%

EPS

$3.17

$3.53

$2.12

(10.20%)

49.53%

Source: MPWR

Guidance suggests different sequential diminution pinch Q1 FY2023 gross of $440-460M, an summation of 19.1% YoY astatine nan midpoint. Accordingly, statement estimates foretell GAAP EPS of $2.15 and non-GAAP EPS of $2.99 successful Q1 FY2023. Estimates besides foretell non-GAAP EPS of $12.70-14.23 connected gross of $1.91-2.01B successful FY2023, some higher than successful FY2022. In different words, while MPWR is expected to get disconnected to a slow commencement pinch little gross and net successful nan early portion of FY2023, some are expected to prime up to extremity FY2023 strong.

Q1 FY2023 (guidance)

Q1 FY2022

YoY (midpoint)

Revenue

$440-460M

$377.7M

19.14%

GAAP gross margin

57.4-58.0%

57.9%

(20bps)

Non-GAAP gross margin

57.7-58.3%

58.3%

(30bps)

MPWR has seen request return a dip. Order patterns look to person stabilized, though they still are not what they utilized to be. From nan Q4 net call:

“During nan quarter, ordering patterns stabilized arsenic customers requested push outs slowed. While this is positive, customers’ orders are still trending beneath historical norms.

In our Q4 2022 inventory is supra our target levels. As a result, we stay cautious astir near-term business conditions.”

A transcript of nan Q4 FY2022 net telephone tin beryllium found here.

The banal has not done arsenic well

The semiconductor assemblage has outperformed successful 2023 and MPWR has been nary exception. The banal has gained 36.6% YTD. In comparison, nan iShares Semiconductor ETF (SOXX) has gained 16.8% YTD. In contrast, nan banal mislaid 28% successful 2022 moreover pinch nan apical and nan bottommost statement reaching caller highs successful 2022. The floor plan beneath shows really MPWR has recovered immoderate of nan 2022 losses. The banal has appreciated by astir half disconnected nan October lows.

MPWR chart

Source: finviz.com

However, it’s worthy noting that nan banal has not done each that good successful spite of nan caller rally. The banal is astatine $483 still beneath wherever it was successful precocious 2021/early 2022. The banal sewage arsenic precocious arsenic an intraday precocious of $580 successful November 2021. The banal has rallied, but it has besides sold disconnected successful nan preceding months, resulting successful a banal that has fundamentally gone successful circles since early 2022. Long MPWR has not been each that rewarding lately.

Furthermore, nan banal seems to person topped retired successful nan $520-540 region, which is apt nary coincidence since this happens to beryllium nan aforesaid region wherever nan banal topped retired past August. The banal has made galore attempts to break done nan $520-540 region, only for each of them to fail, suggesting guidance is coming successful this region.

The likelihood favour a move little pinch guidance hovering complete nan stock, which would springiness backmost immoderate of nan gains accumulated successful caller months. This would beryllium accordant pinch what MPWR has done for complete a year, which is to spell successful circles.

Valuations besides coming a hurdle

It’s not intolerable for nan banal to break guidance and move higher, but if it does, it will person to flooded different hurdle successful valuations. MPWR comes astatine a premium. While immoderate whitethorn person nary problem forking complete a premium, others whitethorn beryllium much reluctant, particularly erstwhile different stocks tin beryllium had astatine a amended price.

MPWR competes against a number of companies successful nan analog market. The ones mentioned successful nan Form 10-K see Analog Devices (ADI), Texas Instruments (TXN), NXP Semiconductors (NXPI) and ON Semiconductor (ON) and respective others. The array beneath shows really multiples for MPWR are importantly higher than its closest competitors.

MPWR

ADI

TXN

NXPI

ON

Market cap

$22.68B

$92.54B

$153.28B

$45.83B

$32.95B

Enterprise value

$21.94B

$97.42B

$153.36B

$53.44B

$33.54B

Revenue ("ttm")

$1,794.1M

$12,579.3M

$20,028.0M

$13,205.0M

$8,326.2M

EBITDA

$571.9M

$6,570.9M

$11,020.0M

$5,105.0M

$3,335.9M

Trailing GAAP P/E

53.38

27.68

17.98

16.76

17.95

Forward GAAP P/E

48.04

25.92

22.14

18.55

18.24

PEG GAAP

0.67

0.22

1.30

0.30

0.21

P/S

12.58

7.49

7.74

3.51

3.97

P/B

13.64

2.53

10.51

6.16

5.32

EV/sales

12.23

7.74

7.66

4.05

4.03

Trailing EV/EBITDA

38.37

14.83

13.92

10.47

10.05

Forward EV/EBITDA

27.72

14.62

16.13

11.08

11.39

Source: Seeking Alpha

An statement tin beryllium made that MPWR deserves to waste and acquisition astatine immoderate benignant of a premium owed to its superior growth, though immoderate whitethorn find nan premium to beryllium excessively overmuch astatine this time. It’s besides worthy mentioning that multiples person travel down. Multiples utilized to beryllium successful nan triple digits, but nan operation of maturation successful nan apical and nan bottommost statement and sideways action successful nan banal person brought them down to immoderate extent. So while immoderate whitethorn find nan premium for MPWR to beryllium excessively high, location whitethorn travel a clip erstwhile this is nary longer nan case, particularly without continued maturation and nan banal going successful circles.

Investor takeaways

MPWR had a awesome twelvemonth successful FY2022. Earnings jumped higher, leaving nan title successful nan dust. On nan different hand, nan banal has small to show for each this growth. The banal has not managed to really summation successful complete a year. Rallies person been neutralized by selloffs and vice versa. This whitethorn person been a delight to traders, but overmuch little truthful for investors who person had small to show for nan past twelvemonth aliases so.

MPWR banal has gained 36.6% YTD, which is amended than most, but that still puts nan banal beneath nan highs successful precocious 2021. The banal whitethorn still beryllium successful nan process of consolidating each nan gains successful 2020-2021, which saw nan banal quadruple successful value. It besides caused multiples to soar higher and immoderate would reason they person to travel down for nan banal to spell higher. The sideways action has done conscionable that.

It’s worthy keeping successful mind that while income and profits person accrued greatly, some are now nether unit pinch nan semiconductor marketplace showing signs of weakening demand. Still, statement estimates foretell nan downturn will not past agelong and maturation will resume to let for FY2023 to beryllium different maturation twelvemonth successful position of gross and earnings.

However, it’s imaginable nan estimates are excessively optimistic and nan downturn could past longer for MPWR than presently expected. If this happens, estimates will person to beryllium revised downwards. The stock, which has rallied each year, acold much than most, whitethorn person rallied excessively overmuch based connected an overly optimistic position of wherever things are heading.

I americium neutral connected MPWR. MPWR is still a banal to support connected nan radar. MPWR’s way grounds erstwhile it comes to maturation is outstanding. There are galore companies who tin execute beardown maturation for a short while, but not galore tin do it twelvemonth aft twelvemonth nan measurement MPWR has done it. Long MPWR is worthy taking into information for that logic alone.

However, nan lawsuit for agelong MPWR is not arsenic clear-cut successful nan short word arsenic it needs to be. The numbers astatine MPWR are presently successful decline, which could go problematic for a banal that trades astatine a premium owed to its superior growth. The charts propose nan banal is much apt to beryllium heading little than higher pinch guidance successful nan way.

In nan end, nan truth that nan banal has fundamentally gone successful circles for complete a twelvemonth says it all. The banal has not really delivered for those who are agelong for good complete a year. Gains person travel and gone. This mightiness beryllium acceptable for nan short-term trader who manages to drawback nan peaks and valleys, but nan immense mostly of investors are improbable to beryllium satisfied by specified an outcome. Staying connected clasp is nan measurement to go.

This article was written by

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Welcome to my author's site. As an avid follower of SeekingAlpha, I return awesome liking successful articles posted arsenic nan taxable matter is often thing that appeals to me. However, I will sometimes brushwood an article that I mightiness not work together with. My intent is to coming an replacement position to readers that they whitethorn want to return into account. I dream you find my articles absorbing and informative.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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