Monolithic Power Systems, Inc. (MPWR) in San Jose, Calif., creates, develops, and sells integrated power semiconductor systems and power delivery architectures for the computing and storage, automotive, industrial, communications, and consumer industries.

The stock has declined 27.7% in price over the past three months and 20.6% over the past month. Closing yesterday's trading session at $393.16, the stock is currently trading 32.2% below its 52-week high of $580.

MPWR is struggling to stay afloat amid challenges related to the semiconductor shortage. In addition, given the stocks' premium valuation, their near-term prospects look uncertain.

Click here to checkout our Semiconductor Industry Report for 2022

Here is what could shape MPWR's performance in the near term:

Industry Headwinds

The increased demand for semiconductor chips from industries such as automobiles and electronics has created a major supply-demand mismatch. According to International Data Corporation (IDC), tight semiconductor supply will persist through the first half of 2022. This could hinder MPWR’s growth and weigh heavily on its prospects.

Strong Profitability

MPWR's 19.2% net income margin is 190.3% higher than the 6.6% industry average. Also, its gross profit margin, levered FCF margin, and ROC are 12.4%, 72.4%, and 183.1% higher than their respective industry averages. Also, its $371.45 million in cash from operations is 230.4% higher than the $112.47 million industry average.

Premium Valuations

In terms of forward non-GAAP P/E, the stock is currently trading at 57.5x, which is 152.5% higher than the 22.77x industry average. Also, its 15.08x forward EV/Sales multiple is 288.5% higher than the 3.88x industry average. Furthermore, MPWR's 16.01x forward Price/Sales is 362.2% higher than the 3.76x industry average.

POWR Ratings Reflect Uncertainty

MPWR has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MPWR has a D grade for Value. The company's higher than industry valuation is in sync with the Value grade.

Among 100 stocks in the A-rated Semiconductor & Wireless Chip industry, MPWR is ranked #59.

Beyond what I have stated above, one can view MPWR ratings for Growth, Stability, Momentum, Quality, and Sentiment here.

Bottom Line

MPWR has retreated nearly 13.9% in price over the past six months. In addition, the stock is currently trading below its $471.57 and $443.94 respective 50-day and 200-day moving averages, reflecting bearish investor sentiment. So, we believe investors should wait for a better entry point in the stock.

How Does Monolithic Power System Inc. (MPWR) Stack Up Against its Peers?

While MPWR has an overall C rating, one might want to consider its industry peer Semtech Corporation (SMTC), ChipMOS Technologies Inc. (IMOS), and Micron Technology Inc. (MU), which has an overall A (Strong Buy) rating.

Click here to checkout our Semiconductor Industry Report for 2022

MPWR shares were unchanged in premarket trading Friday. Year-to-date, MPWR has declined -20.30%, versus a -5.97% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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