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Valued at $43.4 billion by market cap, Monolithic Power (MPWR) is a semiconductor stock that has delivered market-thumping returns for long-term shareholders. The company went public in November 2004 and has since returned 9,200% to investors. If we adjust for dividend reinvestments, cumulative returns are closer to 10,350%.
Monolithic Power designs, develops, and sells semiconductor-based power electronic solutions for several markets, such as computing and storage, automotive, industrial, and communications. It provides direct current to integrated circuits (ICs) that control voltages in various electronic systems and devices. The company also offers lighting control ICs used in systems that provide the light source for LCD panels in computers, car navigation systems, TVs, and more.
The key driver of Monolithic Power’s strong performance can be tied to its revenue and earnings growth. It increased sales from $628 million in 2019 to $1.8 billion in 2023. In the last 12 months, its sales have risen to $1.9 billion. Comparatively, its free cash flow has grown to $630 million in the past year, up from $120 million in 2019.
While MPWR stock has crushed the broader markets, the company's upcoming earnings will be a crucial driver of share price in the near term. Let’s see what you should expect from Monolithic Power when it steps up to report after the close this Wednesday, Oct. 30.
How Will Monolithic Power Perform in Q3 of 2024?
Monolithic Power is well-positioned to capitalize on the growing demand for AI-powered technologies. The company has already showcased its ability to leverage advancements in cooling mechanisms, which provides it with a competitive advantage over peers.
Analysts tracking Monolithic Power expect it to report sales of $600.6 million and adjusted earnings of $3.97 per share in Q3 of 2024. In the year-ago period, it reported revenue of $475 million and earnings of $3.08 per share. So, while revenue is forecast to grow by 26.5%, earnings growth is projected at 29% in the September quarter.
During its last earnings call, Monolithic forecast revenue between $590 million and $610 million for Q3, which was higher than the previous consensus revenue estimates of $550 million.
Monolithic Power continues to experience strong demand from enterprises upgrading their cloud and network infrastructure to support artificial intelligence (AI) capabilities. Its enterprise data segment is the key driver of sales growth. In Q2, the business reported sales of $187.3 million, up from just $48 million in the year-ago period. It now accounts for 37% of total sales, up from just 8.6% in 2020.
Another strong quarter from this vertical will help Monolithic Power offset sluggish demand in its automotive business, as sales of electric vehicles have been sluggish amid a challenging macro backdrop.
Is MPWR Stock a Good Buy?
A strategic focus on innovation and an ability to adapt to market demands allows Monolithic Power to maintain a moat even during periods of market turbulence. A strong balance sheet provides it with the flexibility for future growth initiatives, while the expansion of the AI server market remains a critical needle mover in 2024.
Strong earnings growth allows Monolithic Power to pay shareholders a quarterly dividend of $1.25 per share, which translates to a yield of 0.56%. These payouts have grown by more than 25%, on average, over the past five years. With a payout ratio of 45%, investors can expect dividend hikes to continue in the future.
Out of 11 analysts covering MPWR stock, eight recommend “strong buy,” two recommend “moderate buy,” and one recommends “hold,” for an overall “strong buy” consensus. The average target price is $971.75, with a Street-high forecast of $1,100.
Wall Street forecasts Monolithic Power's sales to increase from $1.8 billion in 2023 to $2.6 billion in 2025. Its adjusted earnings are forecast to grow from $11.78 per share to $17.40 per share in this period. Priced at 53 times forward earnings, it's worth noting that MPWR stock trades at a lofty valuation, given that adjusted earnings are forecast to expand by 25% annually through 2028.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
