Monolithic Power Systems, Inc. (MPWR, Financial) designs, develops, markets and sells semiconductor-based power electronics solutions for various markets, including computing and storage, automotive, industrial, communications and consumer markets. Its products, which include DC-to-DC integrated circuits and lighting control ICs, and are sold through distributors and directly to original equipment manufacturers and other end customers worldwide. Known in the industry as MPS, the company creates much of the technology that makes our electronics run.
Long-term growth potential
When Warren Buffett (Trades, Portfolio) evaluates a business, he looks at its long-term economic prospects by considering unleveraged net tangible assets. His reasoning is straightforward - a business that can increase its earnings without significant capital investment is a better investment. After all, it is true that you need money to make money, but the less money you need to make a profit, the better. In this context, Monolithic Power Systems is a promising company to consider.
In the chart below, Monolithic Power Systems is compared to the other companies in the Standard & Poor's 500 (SPY, Financial). The blue shaded area represents the distribution of all the other companies in the index, while the orange line represents Monolithic Power Systems' performance.
Author's image created with proprietary software sourced from FMP and other sources.
Monolithic Power Systems has a return on unleveraged net tangible assets of 19%, which outperforms the S&P 500 median of 6.3% by over a factor of three. This indicates the company has the potential to grow faster while utilizing fewer resources compared to most other companies.
The company has consistently produced superior profits when compared to others in its industry. This is attributable to its emphasis on creating innovative power solutions for different sectors, such as the automobile, industrial and consumer electronics fields. Monolithic has a history of launching products that are extremely efficient, trustworthy and cost-efficient, which has aided it in raising its revenue.
Risk-reward forecast
In this section, we delve into the potential risks and rewards for Monolithic Power Systems over the next two years. Through the use of historical trading patterns and future revenue estimates, our predictions aim to provide insight into the company's future performance.
The chart below illustrates the forecasted risk and reward for holding shares of Monolithic Power Systems over the next two years. The blue intrinsic value region in the chart shows the area where the stock is likely to trade in 90% of the time. This model takes into account the historical trading patterns of the stock in order to estimate potential future returns.
Author's image created with proprietary software sourced from FMP and other sources.
Monolithic Power Systems has a last close price of $473.61, which is expected to rise significantly. The forecasted intrinsic value for the stock is $977.39, which is centered in the forecasted price range of between $566 and $1681. The potential return is impressive with a total return of 116.9%, including a dividend return of 0.4%.
However, there is still some risk involved, with a value at risk of 39%. This means that the lowest predicted price for Monolithic is $286.61, which is 39% lower than the current price. The predicted return is high, with a forecasted return of 49% year over year, making it a potentially favorable investment.
About the risk forecast
For Monolithic Power Systems, a variety of machine learning algorithms are trained using historical data on earnings, revenue and the federal funds rate to create a forecast of price risk. The resulting chart above displays the predicted intrinsic value of the company in blue bands, with actual price data shown against the prediction. Additionally, the green and red forecast portion indicates how the price at the time of forecast compares to the intrinsic value of the company, with red representing price risk and green representing returns from share price increase. While the algorithms are generally effective at predicting long-term price movement, it is worth noting that prices will occasionally fall outside the blue bands. Nonetheless, this forecast is unique in that it does not rely on any assumptions or magic numbers, as the algorithm tries every possible setting until it finds the optimal one.
Revenue growth: Then and now
In order to gain insight into Monolithic Power Systems' financial performance, we can examine its revenue projections and compare them to the company's past performance. The chart below displays the revenue history for the past eight years as well as forecasts for the next two years.
Author's image created with proprietary software sourced from FMP and other sources.
Monolithic Power Systems is expected to see a 16.1% revenue growth trend for the next two years, which is down 3.7% from its historic growth trend of 19.8%. While a historic growth rate of 19.8% is impressive, the company's projected growth rate of 16.1% is still very healthy. Looking ahead to 2024, revenue estimates are centered around $41.81 per share with a range of $40.17 to $41.81. This stable revenue picture indicates that Monolithic is on track for long-term success.
In the plotted graphs above, you can observe the impact of estimate alterations. If the curves appear to be steady, it indicates the analysts are confident about their initial forecast. However, any shift in slope demonstrates a change in forecasts made by analysts over time. It is uncertain how earnings estimates will evolve in the future for Monolithic Power Systems, but it is essential to note they could fluctuate significantly in either direction.
Conclusion
Monolithic Power Systems has a high return on unleveraged net tangible assets, indicating potential for faster growth while using fewer resources than other companies. The company's forecasted intrinsic value and price range suggest an impressive potential return of 49% this year, including a dividend return of 0.7%, although there is some risk involved with a value at risk of 39%. MPS is projected to see a 16% revenue growth trend over the next two years, indicating long-term success is likely.
