Monolithic Power Systems (NASDAQ:MPWR) Surprises With Strong Q1, Stock Soars

Jabin Bastian /
2022/05/02 4:13 pm EDT
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Power management chips maker Monolithic Power Systems (NASDAQ: MPWR) beat analyst expectations in Q1 FY2022 quarter, with revenue up 48.4% year on year to $377.7 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $430 million at the midpoint, 13.5% above what analysts were expecting. Monolithic Power Systems made a GAAP profit of $79.5 million, improving on its profit of $45.4 million, in the same quarter last year.

Is now the time to buy Monolithic Power Systems? Access our full analysis of the earnings results here, it's free.

Monolithic Power Systems (MPWR) Q1 FY2022 Highlights:

  • Revenue: $377.7 million vs analyst estimates of $360.4 million (4.8% beat)
  • EPS (non-GAAP): $2.45 vs analyst estimates of $2.26 (8.58% beat)
  • Revenue guidance for Q2 2022 is $430 million at the midpoint, above analyst estimates of $378.5 million
  • Inventory Days Outstanding: 178, up from 166 previous quarter
  • Gross Margin (GAAP): 57.9%, up from 55.4% same quarter last year

“We will continue to execute on our long-term plan for sustainable growth,” said Michael Hsing, CEO and founder of MPS.

Founded in 1997 by its longtime CEO Michael Hsing, Monolithic Power Systems (NASDAQ: MPWR) is an analog and mixed signal chipmaker that specializes in power management chips meant to minimize total energy consumption.

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Monolithic Power Systems's revenue growth over the last three years has been very strong, averaging 32% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $254.4 million to $377.7 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Monolithic Power Systems Total Revenue

This was a great quarter for Monolithic Power Systems with 48.4% revenue growth, beating analyst estimates by 4.8%.

Monolithic Power Systems believes the growth is set to continue, and is guiding for revenue to grow 46.5% YoY next quarter, and Wall St analysts are estimating growth 19.2% over the next twelve months.

There are others doing even better than Monolithic Power Systems. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Monolithic Power Systems Inventory Days Outstanding

This quarter, Monolithic Power Systems’s inventory days came in at 178, 16 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Monolithic Power Systems's Q1 Results

With a market capitalization of $18.2 billion and more than $773.5 million in cash, the company has the capacity to continue to prioritise growth.

We were impressed by how strongly Monolithic Power Systems outperformed analysts’ earnings expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the inventory levels increase. Zooming out, we think this was a great quarter and shareholders will likely feel excited about the results. The company is up 5.78% on the results and currently trades at $435 per share.

Monolithic Power Systems may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.