Shares of Monolithic Power Systems (MPWR 2.56%), a specialist in manufacturing integrated circuits for controlling power systems, surged 17.2% through 10:55 a.m. ET Thursday morning, after the company beat expectations for fourth-quarter earnings last night.
Heading into its Q4 report, analysts had forecast the semiconductor company would earn $2.85 per share on sales of $452 million. In fact, Monolithic earned $2.88 per share on sales of $454 million -- a small beat to be sure, but still a beat.
Monolithic Power sales and earnings
Not all the news was good however. While better than expected, Q4 sales actually declined 4.4% year over year, and gross profit margins on those sales contracted by 290 basis points, to 55.3%.
Even worse, operating costs rose nearly twice as fast as sales fell, up 8.2%, driving operating profits down 20% year over year, and subtracting 19% from net income. While Monolithic reported non-GAAP (adjusted) profits of $2.88 per share, thus exceeding Wall Street's expectations, its actual earnings as calculated according to generally accepted accounting principles (GAAP) were only $1.98 per share.
Results for the full year fiscal 2023 were only a bit better. Gross margin still fell, operating costs still rose, and on the bottom line, earnings were only $8.76 per share. But that was only a 3% decline versus 2022, thanks in part to 2023 revenue rising 1.5% in comparison to 2022.
Is Monolithic Power Systems stock a sell?
And yet, the news could also get better going forward. Turning to guidance, CEO Michael Hsing said he's "cautious about near-term business conditions." Nevertheless, he's predicting that in the first quarter, sales will range from $437 million to $457 million -- the entire range of which is ahead of Wall Street's own forecast for $431 million in sales. Gross margin is also stabilizing, and may even improve, with Monolithic saying its gross margin this coming quarter will range from 55.1% to 55.7%.
All things considered, Monolithic still probably won't earn as much in Q1 2024 as it earned in Q1 2023. But analysts are forecasting a 16% decline. If sales turn out to be better than expected, though, and gross margin stops shrinking, then Monolithic could be on course to beat earnings again in Q1 2024.
As for investors' reaction to this news, they're obviously happy about it today. Still, with Monolithic Power stock selling for a pricey 74 times trailing earnings, and earnings still shrinking (by any amount), the stock still looks expensive to me. I don't mean to rain on investors' parade or anything, but I'm afraid this semiconductor stock is still a sell.
