Vicor (VICR)

Power conversion and control solutions provider Vicor Corporation (NASDAQ:VICR) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 12% year on year to $93.97 million. Its GAAP profit of $0.06 per share was 69.2% below analysts’ consensus estimates.

Company Overview

Founded by a researcher at the Massachusetts Institute of Technology, Vicor (NASDAQ:VICR) provides electrical power conversion and delivery products for a range of industries.

Like many equipment and component manufacturers, electronic components companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include data centers and telecommunications, which can benefit companies whose optical and transceiver offerings fit those markets. But like the broader industrials sector, these companies are also at the whim of economic cycles. Consumer spending, for example, can greatly impact these companies’ volumes.

Competitors of Vicor include Texas Instruments (NASDAQ:TXN), Analog Devices (NASDAQ:ADI), and Infineon Technologies (ETR:IFX).

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. Regrettably, Vicor’s sales grew at a mediocre 7.2% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Vicor’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5% annually. Vicor isn’t alone in its struggles as the Electronic Components industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Vicor’s revenue grew by 12% year on year to $93.97 million but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 15.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will catalyze better top-line performance.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

Vicor has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 48.4% gross margin over the last five years. That means Vicor only paid its suppliers $51.55 for every $100 in revenue.

This quarter, Vicor’s gross profit margin was 47.2%, marking a 6.6 percentage point decrease from 53.8% in the same quarter last year. Vicor’s full-year margin has also been trending down over the past 12 months, decreasing by 2.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Vicor has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.7%, higher than the broader industrials sector.

Looking at the trend in its profitability, Vicor’s operating margin decreased by 5.9 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Vicor’s breakeven margin was down 1.5 percentage points year on year. Since Vicor’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Vicor’s EPS grew at an astounding 22.3% compounded annual growth rate over the last five years, higher than its 7.2% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Vicor’s two-year annual EPS declines of 21.8% were bad and lower than its two-year revenue performance.

In Q1, Vicor reported EPS at $0.06, up from negative $0.33 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Vicor’s full-year EPS of $0.52 to grow 148%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Vicor has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.5%, lousy for an industrials business.

Taking a step back, an encouraging sign is that Vicor’s margin expanded by 7.3 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? 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 Vicor hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 15.5%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Vicor’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Vicor is a profitable, well-capitalized company with $296.1 million of cash and $7.03 million of debt on its balance sheet. This $289.1 million net cash position is 15.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results as its revenue and EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 11.5% to $46.03 immediately following the results.

Updated: May 22, 2025 at 11:10 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Vicor, you should also grasp the company’s longer-term business quality and valuation.

Vicor isn’t a terrible business, but it doesn’t pass our quality test. To begin with, its revenue growth was mediocre over the last five years. And while its admirable gross margins indicate the mission-critical nature of its offerings, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining operating margin shows the business has become less efficient.

Vicor’s P/E ratio based on the next 12 months is 25.9x. At this valuation, there’s a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $50 on the company (compared to the current share price of $41.55).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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