At US$672, Is It Time To Put Monolithic Power Systems, Inc. (NASDAQ:MPWR) On Your Watch List?

Simply Wall St · 03/25 11:05

Let's talk about the popular Monolithic Power Systems, Inc. (NASDAQ:MPWR). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today we will analyse the most recent data on Monolithic Power Systems’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Monolithic Power Systems

Is Monolithic Power Systems Still Cheap?

Monolithic Power Systems is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 76.55x is currently well-above the industry average of 28.83x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Monolithic Power Systems’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Monolithic Power Systems?

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NasdaqGS:MPWR Earnings and Revenue Growth March 25th 2024

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 68% over the next couple of years, the future seems bright for Monolithic Power Systems. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? MPWR’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe MPWR should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on MPWR for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for MPWR, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Monolithic Power Systems, you'd also look into what risks it is currently facing. For example - Monolithic Power Systems has 2 warning signs we think you should be aware of.

If you are no longer interested in Monolithic Power Systems, you can use our free platform to see our list of over 50 other stocks with a high growth potential.