The stock on Monday was trading up about 103% for the year. However, the advance offered only a single breakout, from the stock’s bear-market base in May. Monolithic Power is currently toying around with a cup-base buy point at 358.79, in a buy range, but with volume too weak to yet be considered a breakout.
Semiconductor stocks come in a lot of shapes and sizes, and provide the basic building blocks for the world’s technology-driven economies.
Fabless chip stocks are companies that outsource their manufacturing to foundries that are in the semiconductor manufacturers group, such as Taiwan Semiconductor (TSM) and Intel (INTC). The fabless group had a 66% gain for the year to Monday.
IBD gives Monolithic Power Systems (MPS) the No. 2 ranking in the group, ahead of Nvidia (NVDA), Advanced Micro Devices (AMD) and Marvell Technology (MRVL). Inphi (IPHI) is the group’s top-ranked stock.
However, the breakdown of Dow Jones stock Intel has held the chip manufacturers group to a year-to-date gain of 34%.
A Leader Among Semiconductor Stocks
Monolithic Power designs analog and mixed signal IC (integrated circuit) chips to handle power supply functions in specific devices and circuits. This can involve tasks such as converting incoming AC power to DC for use in digital devices, or transforming levels of DC power within digital devices to voltages needed by specific systems and components.
Specifically, power supplies for computing, storage, notebooks, printers and servers accounted for just under 30% of MPS third-quarter revenue. That was up from about 21% just three years earlier. Chips for consumer electronics — TV set top boxes, computer monitors, and gaming devices, among a wide array of other products — was 27% of revenue, down from 40% in 2017. Industrial and Automotive markets were about 11% each, with communications markets accounting for the remaining 21%.
At the end of 2019, the company reported that it contracted with six suppliers in China and Korea to supply its chips. Almost 35% of sales were through the company’s two leading distributors, with no other distributor or end customer accounting for 10% of sales.
Capacity improvements have been the key driver of MPS’ recent earnings and sales acceleration, along with rising orders from customers within China. In the second quarter, these included Huawei and ZTE. Both companies have since been named as national security threats by the Trump administration.
In addition, the company reported $179.5 million in cash at the end of the third quarter, up 4% from the start of the year. Its debt was $349.3 million, a modest sum among similar semiconductor stocks.
MPS: Sound Technical Traits
Monolithic Power carries a best-possible 99 Composite Rating from IBD. Its Accumulation/Distribution rating is a strong B-, which suggests institutions are holding or adding to positions, rather than exiting the stock. The up/down volume ratio is 1.0. U/D ratios of 1.0 or higher indicted upward price pressure on the stock.
Monolithic’s relative strength line has been a little wild compared to some other semiconductor stocks recently, punching to big new highs in October and November, then pulling back as the stock consolidated. It is now near, but not quite at new highs. You would rather see it punching to fresh highs to confirm a breakout, like Inphi’s RS line.
Find Alan R. Elliott on Twitter @IBD_Aelliott
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