Marveling as Marvell's Earnings Growth Takes Off

Everyone that loves to make money knows that growth in earnings and sales is very important for a stock's price. For those that are looking to put their money in a relatively cheap technology stock that is showing some huge recent growth in EPS and sales, look no further than Marvell Technology Group (MRVL).

MRVL is an Electronic Semiconductor Manufacturing stock that designs analog, digital, mixed-signal and microprocessor ICS for storage, telecom/data and consumer markets. On June 3rd the company introduced the 88NV8120 PCI Express-based NAND flash controller for use in both PCs and Mobile Internet Devices. It is very cool products like this that now has the stock making investors a lot of money since its January lows. And I doubt the price gains are finished right here.

MRVL has recently shown some amazing EPS growth with EPS growing 17%, 567%, and 380% the past three quarters. Not only is the current growth fantastic, the expectations are even better. For 2009 and 2010, analysts expect this company's EPS to grow 116% and 16% respectively to .95 and 1.10 per share.

While the EPS has only recently been put back on track, sales have been “going off” since July 2006 with sales growth of 47%, 22%, 27%, 22%, 14%, 46%, 36%, and 27% the past eight quarters. This is the kind of sales growth that drives the best stocks every year.

That growth comes from the 8% ROE, that combined with a 12% debt to shareholder equity, helps keep this stock cooking, giving it a five year EPS growth rate of 21%. That combined with the p/e ratio of 26, which is on the low end of the 5-year range of 19 to 70, is yet another fundamental factor demonstrating why this stock will continue to grow and make money into the intermediate future. With an EPS of .24 and a current cash flow of .65 it is clear to me that this company knows how to operate.

Those kind of numbers are the reason management owns 19% and investment funds own 28% of the stock. All of the smart money is putting their investments into the available shares outstanding.

This stock is a very strong stock on a relative strength basis and is in the top 10% of stocks based on price performance the past 52 weeks. Historically, the best stocks are in the top 10%. And this stock is not shy of friends that are leading this electronics-semiconductor manufacturing group higher. STEC, IXYS, VLTR, PSEM, and NETL have made investors a lot of money since the March lows. With the way the fundamentals look in each of these stocks, I truly doubt the top is here. Most of these will more-than-likely solidify at their current bases, break out, and then run again.

Investors Business Daily confirms the strong fundamentals with the stock coming in with an EPS rating of 92, a RS (relative strength) rating of 93, a group RS rating of 81, an SMR rating of B, an accumulation/distribution rating of a A-, a composite rating of 95, a timeliness rating of B and a mutual fund sponsorship rating of C. Overall these are fantastic numbers confirming the actual fundamentals.

I don’t just use fundamentals when I invest. I also use technicals and with my current long position, I will not let this stock reverse and close below the 50-DMA (the white line in the chart below). The stock has to keep moving higher and making me money or else I want to park my money in a different winning stock.

click to enlarge

Disclosure: At the time of publication, author was long MRVL.

Comments

[Ranjit Thomas:]

Maybe you should have pointed out that the "EPS" you refer to is pro-forma and ignores a huge amount of stock compensation? On a GAAP basis, the company is barely profitable.

2008 Jun 22 05:08 PM

[Wifiguy:]

FalseProfit, doesn't all companies follow the same GAAP rules. You are beating a dead horse.

2008 Jun 22 08:46 PM

[Chandler Lutz:]

Great Article! The only thing that I would also like to know about is the firm's competitive advantage. In the fast moving technology business a competitive advantage is very hard to sustain. If this firm can't stay ahead of competitors (I don't think I saw any R&D numbers in the article) all the growth mentioned would have been for not. In general, the degree of "moat" is hard to determine in tech companies most the time. That's probably why I usually stay away from such firms...

2008 Jun 23 12:03 AM

[Author_Ego:]

FalseProfit,

I don't know why I'm answering you, as it's pretty clear you know it all. Yet it's true, IBD bases those ratings on "normalized" EPS, which are a type of pro forma. They do this because it better reflects a company's ongoing operations. The after-tax amount of one-time gains and charges, extraordinary items, etc. are backed out of the net income by their research staff to get that "normalized" figure. IBD's studies go back decades and have pretty much established that the "normalized" figure is the best in analyzing a stock's past earnings growth and its future potential. But why bother yourself with facts, right?

2008 Jun 23 02:49 PM