On Wednesday, Citi initiated coverage on Monolithic Power Systems (NASDAQ:MPWR) stock, assigning a Buy rating alongside a price target of $700. The new price target reflects a positive outlook for the analog semiconductor company following a significant drop in its share value. With a market capitalization of $29 billion and an "GREAT" financial health score according to InvestingPro, MPWR has demonstrated strong fundamentals despite recent volatility.
Monolithic Power Systems recently experienced a 40% sell-off, which was attributed to the company's share loss at Nvidia (NASDAQ:NVDA). This downturn has brought MPWR's premium over the SOX index to a decade low, ranging between 20-30%.
Trading at a P/E ratio of 66.5x and maintaining dividend payments for 11 consecutive years, the stock currently appears slightly overvalued according to InvestingPro's Fair Value analysis. Citi views this as an opportune moment for investors to consider MPWR, citing the company's impressive track record of sales and earnings growth.
The firm's assessment highlights Monolithic Power Systems' consistent performance, with over 20% sales growth and more than 30% earnings per share (EPS) compound annual growth rate (CAGR) over the past ten years. Citi anticipates that the company will maintain this level of sales growth, driven by the anticipated analog inventory replenishment.
Furthermore, Citi believes that the expanding artificial intelligence (AI) and automotive markets could offset potential losses in MPWR's market share. The price target of $700 is based on a 36 times multiple of the company's projected 2026 EPS, aligning with the valuation range Monolithic Power Systems experienced before the AI market upswing.
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