Since December 2020, the S&P 500 has delivered a total return of 85.6%. But one standout stock has nearly doubled the market - over the past five years, Monolithic Power Systems has surged 164% to $944.33 per share. Its momentum hasn’t stopped as it’s also gained 31.8% in the last six months thanks to its solid quarterly results, beating the S&P by 18.9%.
Is now still a good time to buy MPWR? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free for active Edge members.
Why Are We Positive On Monolithic Power Systems?
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.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Monolithic Power Systems grew its sales at an incredible 27.9% compounded annual growth rate. Its growth beat the average semiconductor company and shows its offerings resonate with customers. 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).
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Monolithic Power Systems’s spectacular 29.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Monolithic Power Systems’s five-year average ROIC was 45.5%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
These are just a few reasons why we think Monolithic Power Systems is one of the best semiconductor companies out there, and with its shares topping the market in recent months, the stock trades at 47.6× forward P/E (or $944.33 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
Stocks We Like Even More Than Monolithic Power Systems
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