MPWR Stock Study (9-21-23)

I recently did a stock study on Monolithic Power Systems, Inc. (MPWR) with a closing price of $457.78.

M* writes:

     > Monolithic Power Systems is an analog and mixed-signal chipmaker,
     > specializing in power management solutions. The firm’s mission is
     > to reduce total energy consumption in end systems, and it serves
     > the computing, automotive, industrial, communications, and
     > consumer end markets. MPS uses a fabless manufacturing model,
     > partnering with third-party chip foundries to host its
     > proprietary BCD process technology.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 23.4% and 23.2%, respectively. Lines are up, straight, and narrowing except for an EPS dip in ’15. PTPM leads peer averages but trails the industry despite increasing from 10.1% in (’13) to 29.3% (’22) with a last-5-year mean of 22.0%.

Also over the past decade, ROE leads peer averages but trails the industry despite increasing from 7.1% (’13) to 27.9% (’22) with a last-5-year mean of 19.2%. Debt-to-Capital is far below peer and industry averages by remaining debt-free except for 0.3% in ’19 and ’20 for a last-5-year mean of 0.1%.

[As a result] Interest Coverage is NMF (indeterminate) and Quick Ratio is an amazing 4.5. M* rates the company “Standard” for Capital Allocation, and Value Line gives an A+ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects flat YOY and 8.0% growth per year for ’23 and ’22-’24 (based on 11 analysts).
• YF projects YOY growth of 1.5% and 14.9% for ’23 and ’24, respectively (13 analysts).
• Zacks projects YOY growth of 1.4% and 14.1% for ’23 and ’24, respectively (6).
• Value Line projects 12.3% annualized growth from ’22-’27.
• CFRA projects growth of 2.6% YOY and 9.0% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 8.6% per year and projects 5-year annualized growth of 13.0% in its analyst note.

I am forecasting below the two long-term estimates at 10.0% per year.

With regard to EPS growth:

• CNN Business projects 4.3% YOY contraction and 5.5% growth per year for ’23 and ’22-’24, respectively (based on 11 analysts), along with 5-year annualized growth of 18.1%.
• MarketWatch projects annualized growth of 3.2% and 9.1% for ’22-’24 and ’22-’25, respectively (15 analysts).
• Nasdaq.com projects growth of 18.5% YOY and 23.4% per year for ’24 and ’23-’25 [7/7/1 analyst(s) for ’23/’24/’25].
• Seeking Alpha projects 4-year annualized growth of 18.4%.
• YF projects YOY 5.2% contraction and 15.0% growth for ’23 and ’24, respectively (12), along with 5-year annualized growth of 25.0%.
• Zacks projects YOY 5.3% contraction and 14.6% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 18.1%.
• Value Line projects 8.9% annualized growth from ’22-’27.
• CFRA projects 3.9% YOY contraction and 5.3% growth/year for ’23 and ’22-’24 along with a 3-year CAGR of 24.0%.
• M* projects long-term annualized growth of 18.0%.

I am forecasting near the bottom of the 5-long-term estimate range (mean 17.8%) at 12.0% per year. I will use ’22 EPS of $9.05/share as the initial value rather than 2023 Q2 $9.32 (annualized).

My Forecast High P/E is 50.0. Over the past decade, high P/E ranges from 56.9 in ’14 to 115 in ’21 with a last-5-year mean of 84.2. The last-5-year-mean average P/E is 64.0. I am forecasting below the entire range.

My Forecast Low P/E is 33.0. Over the past decade, low P/E ranges from 33.3 in ’22 to 59.7 in ’21 with a last-5-year mean of 43.7. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) of $298.70 is default based on the initial value of $9.05/share. This is 34.8% less than the previous closing price and 1.0% less than the 52-week low.

Since 2014, Payout Ratio ranges from 33.1% (’22) to 93.0% (’15) with a last-5-year mean of 51.2%. I am forecasting conservatively below the range at 33.0%.

These inputs land MPWR in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 12.1%.

PAR (using Forecast Average—not High—P/E) is 8.2%, which is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 198 studies (my study and 86 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 15.0%, 16.0%, 60.0, 41.0, and 54.8%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 40.0 is lower than MS (50.5) and lower than mine (41.5).

MS high / low EPS are $19.41 / $8.36 vs. my $15.95 / $9.05 (per share). My high EPS is lower due to a lower growth estimate. Value Line projects $19.00/share for high EPS, which is greater than mine.

MS LSPF of $301.70 implies a Forecast Low P/E of 36.1: less than the above-stated 41.0. MS LSPF is also 12.0% less than the default $8.36/share * 41.0 = $342.76, which results in more conservative zoning. MS LSPF remains 1.0% greater than mine.

My TAR (I prefer >15.0%) is less than MS 19.5%. MOS in the current study appears to be robust.

I track a few [usually conflicting] valuation metrics. PEG is 2.2 and 3.2 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.78. Kim Butcher’s “quick and dirty DCF” prices the stock at 36.0 * [$20.20 – ($5.00 + $3.00)] = $439.20, which suggests the stock to be fairly valued.

MPWR is a BUY under $423/share. To meet my personal TAR criterion, I probably need a price under $400.