Monolithic Power Systems, Inc. (NASDAQ:MPWR) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance. Monolithic Power Systems has also found favour with investors, with the stock up a worthy 13% to US$445 over the past week. Could this upgrade be enough to drive the stock even higher?
Following the upgrade, the most recent consensus for Monolithic Power Systems from its twelve analysts is for revenues of US$1.7b in 2022 which, if met, would be a substantial 30% increase on its sales over the past 12 months. Statutory earnings per share are presumed to bounce 40% to US$8.34. Prior to this update, the analysts had been forecasting revenues of US$1.5b and earnings per share (EPS) of US$6.91 in 2022. So we can see there's been a pretty clear increase in analyst sentiment in recent times, with both revenues and earnings per share receiving a decent lift in the latest estimates.
Despite these upgrades, the analysts have not made any major changes to their price target of US$560, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Monolithic Power Systems at US$630 per share, while the most bearish prices it at US$500. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's clear from the latest estimates that Monolithic Power Systems' rate of growth is expected to accelerate meaningfully, with the forecast 42% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 23% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 9.6% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Monolithic Power Systems to grow faster than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So Monolithic Power Systems could be a good candidate for more research.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Monolithic Power Systems going out to 2024, and you can see them free on our platform here..
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.