Stocks ticked higher this morning, taking back some of the losses of the past three weeks as traders kicked off the holiday-shortened week with enthusiasm.
If growth investors have learned anything over the past year, it’s that a downturn can happen fast. Challenges like the ones we’ve seen recently – supply chain shortages, rising costs, Fed policy changes, and geopolitical turmoil – threaten to take the wind out of the market’s sails at any time, typically pulling the rug out from under volatile growth names.
Striking up a position in a name that’s recently suffered a significant drop can be intimidating, but a high-risk factor also comes along with great reward potential. However, not all names that have had their prices slashed are great bargains. Discernment and due diligence are critical when selecting stocks from the high-risk, high-reward category.
Some stocks will recover more swiftly than others. Today we’re highlighting a semiconductor name that’s firing on all cylinders with plenty to support its optimistic outlook for Q3. The sell-off in the semiconductor space seems to have delivered a buying opportunity in this name for those with some risk tolerance.
Specialist semiconductor design corporation Monolithic Power Systems (MPWR) serves a variety of sectors, including automotive, industrial, communications, and consumer goods. Various businesses are being impacted by global supply chain disruptions and chip scarcity. The realities of supply and demand, on the other hand, imply that the lesser number of chips will be more expensive, and firms like MPWR will be able to operate at total capacity while still doing so profitably.
MPWR currently pays a dividend yield of 0.7%. Their year-over-year numbers are all in the green, and the forecasts indicate quarterly and annual growth. The company blew past analyst estimates for Q2. Profit grew 80% on a non-GAAP basis to $3.25 a share as sales rose 57% to $461 million. This was well clear of consensus estimates of $2.94 and $430.6 million. In addition, gross margin improved by 280 basis points to 58.8%.
Monolithic Power sees Q3 revenue in the ballpark of $480 million to $500 million, well above the consensus estimate of $466 million, suggesting the analyst community may be underestimating the stock. We’ll have to wait until next season to find out exactly how well the company is maintaining amid current challenges.
MPWR has a consensus 12-month price target of $570.00, which implies an increase of 34% from the most recent price. The consensus gives MPWR a solid buy rating. Of 13 analysts offering recommendations, 11 rate the stock as Buy, and 2 say to Hold. There are currently no Sell ratings for the stock.
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