What a fantastic six months it’s been for MACOM. Shares of the company have skyrocketed 46.8%, hitting $185.35. This run-up might have investors contemplating their next move.
Is now still a good time to buy MTSI? Or are investors being too optimistic? Find out in our full research report, it’s free for active Edge members.
Why Does MACOM Spark Debate?
Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.
Two Positive Attributes:
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 many enduring ones grow for years. Thankfully, MACOM’s 12.8% annualized revenue growth over the last five years was impressive. Its growth surpassed 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.
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.
MACOM’s EPS grew at an astounding 29.1% compounded annual growth rate over the last five years, higher than its 12.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Although MACOM has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.6%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.
Final Judgment
MACOM’s positive characteristics outweigh the negatives, and after the recent surge, the stock trades at 43.7× forward P/E (or $185.35 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
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