Monolithic Power Systems (MPWR): Buy, Sell, or Hold Post Q4 Earnings?

Monolithic Power Systems currently trades at $1,020 and has been a dream stock for shareholders. It’s returned 215% since March 2021, nearly tripling the S&P 500’s 76% gain. The company has also beaten the index over the past six months as its stock price is up 19% thanks to its solid quarterly results.

Is it too late to buy MPWR? Find out in our full research report, it’s free.

Why Is Monolithic Power Systems 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Monolithic Power Systems grew its sales at an incredible 27% 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 28.7% 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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Monolithic Power Systems’s five-year average ROIC was 43.5%, 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 Monolithic Power Systems ranks near the top of our list, and with its shares topping the market in recent months, the stock trades at 50.2× forward P/E (or $1,020 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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