It is surprising to see that Analog Devices (ADI -0.87%) has underperformed the broader stock market in 2021 despite a string of solid quarterly results that have exceeded expectations on the back of robust chip demand from the industrial and automotive markets.

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Analog's earnings have consistently exceeded Wall Street's expectations over the past year, and a similar story unfolded again when the company released its fiscal 2021 third-quarter results. The chipmaker delivered impressive year-over-year growth in revenue and earnings, and its guidance was good enough to indicate that it has more upside to offer.

Let's look closely at Analog's Q3 performance and see why it makes sense to buy this chip stock right now.

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Analog Devices' streak of compelling results continues

Analog Devices' Q3 revenue increased 21% year over year to $1.76 billion, while adjusted earnings jumped 26% to $1.72 per share. Wall Street was expecting the company to earn $1.62 per share on revenue of approximately $1.71 billion, but it easily exceeded those estimates thanks to a favorable business environment in the semiconductor space.

Management explained on the latest earnings conference call that semiconductor demand is exceeding supply. The tight supply environment is expected to continue into 2022, but the chipmaker is confident it will deliver strong growth despite the constraints. That's because Analog Devices has been bringing additional in-house manufacturing capacity online to satisfy the jump in orders.

Analog Devices expects the capacity additions will help it close the fiscal year on a high, with revenue of $1.78 billion in the fourth quarter and adjusted earnings of $1.72 per share. The company had earned $1.44 per share in Q4 of fiscal 2020 on $1.53 billion in revenue, which means that it is on track to clock year-over-year growth in the high teens once again.

However, Analog Devices' capacity additions mean that it may be able to outperform its expectations, especially considering that the company has secured orders that spill over into 2022. The chipmaker finished the third quarter with a book-to-bill ratio of 1.2 thanks to strong demand across all its end markets. A book-to-bill ratio of more than 1 means that a company is receiving more orders than it can fulfill in the near term. So Analog Devices' capacity additions could help it fulfill more orders, generate stronger growth, and crush Wall Street's expectations again.

More importantly, the demand for Analog Devices' chips isn't going to fade anytime soon and should help the company maintain its high pace of growth for a long time to come. Let's see why that's going to be the case.

Secular catalysts should ensure long-term growth

Analog Devices' industrial and automotive markets were its biggest catalysts last quarter. The industrial business generated $1 billion in revenue, accounting for nearly 57% of the total revenue and recording 29% year-over-year growth.

Analog's chips are used in diverse verticals of the industrial market, such as instrumentation and test and factory automation. The company points out that the instrumentation and test market is benefiting from the rollout of new connectivity technologies, electric vehicles, and artificial intelligence, among others. Analog expects its instrumentation revenue opportunity to increase by $5 billion by 2025, indicating that it has a lot of room to grow this vertical. It generated $860 million in revenue last year.

The factory automation space, on the other hand, is another lucrative opportunity for Analog, as this market is expected to grow at 12% a year through 2026, according to a third-party report. The automotive business grew a whopping 80% year over year last quarter to $290 million and produced 16% of the company's revenue, so it is easy to see that Analog is winning big in this market.

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The chipmaker is focusing on fast-growing segments of the automotive chip market, such as battery management systems for electric vehicles (EVs), digital cockpit systems, and safety sensors. The battery management system space, for example, is expected to grow at more than 15% a year for the next five years, while the demand for digital cockpits could grow at over 13% a year according to third-party estimates.

Analog Devices stands to gain from diverse growth drivers that could help the stock break out of its rut this year and jump higher. That's why investors looking to add a potential growth stock to their portfolios can consider buying Analog Devices, as it is trading at 23 times forward earnings, which represents a discount to the S&P 500's earnings multiple of 31.3. In short, Analog Devices looks affordable in light of its powerful growth engines.