Semiconductors company Marvell Technology stunned Wall Street today as it surged to $61.08, marking a 3.3% change. MRVL is -6.75% below its average analyst target price of $65.5, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Marvell Technology has underperfomed the S&P 500 by 4.0%, moving -0.4%.
Marvell Technology, Inc., together with its subsidiaries, provides data infrastructure semiconductor solutions, spanning the data center core to network edge.
Marvell Technology does not release its trailing 12 month P/E ratio since its earnings per share of $-0.19 were negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for MRVL of -321.5. Based on the company's positive earnings guidance of $2.35, the stock has a forward P/E ratio of 26.0.
The average trailing Price to Earnings (P/E) ratio of US-based technology companies is 27.16 as of first quarter of 2023. In contrast, the S&P 500 average is 15.97. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead).
Marvell Technology's P/E ratio tells us how much investors are willing to pay for each dollar of the company's earnings. The problem with this metric is that it doesn't take into account the expected growth in earnings of the stock. Sometimes elevated P/E ratios can be justified by equally elevated growth expectations.
We can solve this inconsistency by dividing the company's trailing P/E ratio by its five year earnings growth estimate, which in this case gives us a 2.75 Price to Earnings Growth (PEG) ratio. Since the PEG ratio is greater than 1, the company's lofty valuation is not completely justified by its growth levels.
To better understand the strength of Marvell Technology's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 5,919,600 | 2,627,900 | 6.07 | 185.86 |
| 2022-01-31 | 4,462,383 | 2,379,551 | -7.07 | -306.32 |
| 2021-01-31 | 2,968,900 | 1,539,980 | -1.74 | 75.04 |
| 2020-01-31 | 2,699,161 | 1,544,971 | -6.97 | n/a |
- Average operating margins: -2.4 %
- Average operating margins growth rate: 17.0 %
- Coefficient of variability (lower numbers indicate less volatility): 254.9 %
Marvell Technology's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to its operating cash flows minues its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 1,288,800 | -217,300 | 1,071,500 | 69.47 |
| 2022-01-31 | 819,368 | -187,121 | 632,247 | -9.39 |
| 2021-01-31 | 817,287 | -119,506 | 697,781 | 154.98 |
| 2020-01-31 | 360,297 | -86,633 | 273,664 | n/a |
- Average free cash flow: $668.8 Million
- Average free cash flow growth rate: 40.7 %
- Coefficient of variability (lower numbers indicating more stability): 48.9 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in MRVL have received an annualized dividend yield of 0.4% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). As of the first quarter of 2023, the mean P/B ratio of the technology sector is 6.23, compared to the S&P 500 average of 2.95. The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Marvell Technology's P/B ratio is 3.39, indicating that the market value of the company exceeds its book value by a factor of more than3, but is still below the average P/B ratio of the Technology sector.
Since it has a negative P/E ratio, a lower P/B ratio than its sector average, consistent free cash flow on an upwards trend, Marvell Technology is likely fairly valued at today's prices. The company has poor growth indicators because of a negative PEG ratio and consistently negative margins with a positive growth rate. We hope you enjoyed this basic overview of MRVL's fundamentals. Make sure to check the numbers for yourself, especially focusing on their trends over the last few years.
