Truist analysts increased their price target on October 2, 2024 for Monolithic Power Systems, (NASDAQ:MPWR), from $914 to $994. This represents a potential gain of over 10% compared with the close that day.
After the announcement, MPWR’s shares rose 3% in early trading. Analysts cited stronger-than-expected growth in the end market, driven by strong demand for client computing and communication.
Truist confirmed their Buy rating. They are confident that MPWR will continue to be successful in winning design awards, particularly in AI and the enterprise data market.
MPWR receives strong analyst support
Truist’s bullish outlook isn’t the only one. Stifel also reiterated its Buy rating after meeting Monolithic Power senior management. The price target was increased to $1100.
Stifel highlighted MPWR’s innovative high-performance digital technology and positioned the company as an industry leader for systems-level solutions.
Artificial intelligence and enterprise data are key drivers of growth for the firm.
Oppenheimer expressed similar sentiments following MPWR’s Q2 earnings, commending its performance despite industry challenges and maintaining a price target of $900.
MPWR Q2 results beat expectations
Monolithic Power Systems has delivered positive results in the second quarter 2024. The non-GAAP earning per share (EPS), which was $3.17 and exceeded estimates by $0.10, showed strong performance.
The company’s revenue was $507.43 millions, an increase of 15% over the previous year, well in excess of Wall Street consensus of $490.55million.
The gross margin was 55.3% in 2018, slightly less than last year, but still within the range of the guidance provided by the company.
The operating income rose 22% in Q2 compared with Q1, showing that efficiency has improved despite higher costs.
MPWR’s exposure to segments with high growth, such as artificial intelligence and data centres, is a key factor in its recent performance.
MPWR’s revenue grew significantly in Q2 due to its enterprise data sales, accounting for more than 37% of the company’s total sales.
The demand for AI server products drove this segment to grow by over 250% in comparison with last year.
This shift in the company from a chip provider to a complete solutions provider allowed them to take advantage of this increasing demand and position themselves for further market share growth.
Growth divergence by geography
While MPWR’s revenue grew in some regions like China and Taiwan as well, it declined in others, such as the U.S.
China and Taiwan contributed the most to overall company revenue growth.
China’s revenue grew 30% over the previous year, while Taiwanese sales almost doubled due to strong demand for applications that require high performance computing.
Markets like Japan and Southeast Asia, on the other hand, reported declines in excess of 50%. This raises concerns as to how dependent MPWR may be upon certain regions for its growth.
MPWR Stock: Growth Potential and Value Metrics
Monolithic Power stock is up over 45% this year, outpacing semiconductors’ average gain.
This performance, however, has driven the valuation of the company to high levels.
MPWR is currently trading at an forward P/E of 63.7x. This ratio is far above the average for this industry.
Price-to-book is also 19.77x. This ratio is significantly higher than that of its peers, such as Analog Devices or Texas Instruments. Their multiples range from 3x-10x.
Analysts are optimistic about 2025 despite this high valuation. The analysts cite the consistent revenue growth of MPWR, along with strong demand for AI and data centres.
Cash Position and Shareholder Returns
Monolithic Power’s strong financial foundation strengthens the growth prospects of its company.
The company finished Q2 with more than $1.3 billion of cash, and minimal debt. This allowed it to heavily invest in R&D while returning value to its shareholders via dividends and stock buybacks.
MPWR will increase its dividend in 2024 by 25 percent, but its yield is still lower than average historical levels due to recent share price surge.
Even as the company ramps up its capital expenditures in support of future growth, it still generates a strong free cash flow.
MPWR stock: strong financial outlook
MPWR has forecast a third quarter revenue of between $590 and $610 millions, which is a substantial increase over the $507.43 reported in Q2.
This would be a record-breaking achievement for the business. MPWR is well-positioned for profitability, despite the challenges facing industry.
Analysts predict that EPS will continue to rise, and are projecting a growth of over 25% from the current level.
When evaluating MPWR’s financial strength and the support of analysts, we must also pay attention to its price movement.
Let’s now see what charts say about the price trend of Monolithic Power Systems.
Consistent compounder
Since the beginning of 2018, MPWR is one of the top-performing semiconductor stocks, delivering returns of over eightfold to investors.
TradingView
Stocks show a strong upward trend across all time frames. It has faced resistance recently near $954 after retracing from this level twice over the last few weeks.
Investors who have yet to buy the stock, but are optimistic about it, should start a small position with a limit loss of $758.
This position can be increased once the stock shows a clear breakout over $954.
The chances that this trade will be profitable are very slim for traders who hold a negative view on the stock.
You can start a short trade near $920, with a loss stop of $256.6. The profit goal is $760.
The price of Monolithic Power Systems has been raised by Truist to $994. Is it a good buy? This post may change as new information becomes available
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