3 Reasons Investors Love Monolithic Power Systems (MPWR)

What a time it’s been for Monolithic Power Systems. In the past six months alone, the company’s stock price has increased by a massive 61.1%, reaching $1,573 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Following the strength, is MPWR a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Is MPWR a Good Business?

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 performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Monolithic Power Systems’s sales grew at an incredible 25.9% compounded annual growth rate over the last five years. 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

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Monolithic Power Systems’s spectacular 27.7% 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 43%, 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 Monolithic Power Systems is one of the best semiconductor companies out there, and after the recent rally, the stock trades at 64.7× forward P/E (or $1,573 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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