What a fantastic six months it’s been for Marvell Technology. Shares of the company have skyrocketed 208%, hitting $304.87. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is it too late to buy MRVL? Find out in our full research report, it’s free.
Why Does MRVL Stock Spark Debate?
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Marvell Technology grew its sales at an exceptional 22.9% compounded annual growth rate. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
2. Operating Margin Rising, Profits Up
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Marvell Technology’s operating margin rose by 19.8 percentage points over the last five years, as its sales growth gave it immense operating leverage. Its operating margin for the trailing 12 months was 16%.
One Reason to Be Careful:
Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Although Marvell Technology has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 0.3%, meaning management lost money while trying to expand the business.
Final Judgment
Marvell Technology’s positive characteristics outweigh the negatives, and with the recent surge, the stock trades at 66.6× forward P/E (or $304.87 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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