Since April 2021, the S&P 500 has delivered a total return of 60%. But one standout stock has nearly doubled the market - over the past five years, Marvell Technology has surged 108% to $106.40 per share. Its momentum hasn’t stopped as it’s also gained 23.4% in the last six months thanks to its solid quarterly results, beating the S&P by 26.3%.

Is now still a good time to buy MRVL? Or are investors being too optimistic? Find out in our full research report, it’s free.

Why Does Marvell Technology Spark Debate?

Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Marvell Technology’s 22.5% annualized revenue growth over the last five years was exceptional. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

2. Operating Margin Rising, Profits Up

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Marvell Technology’s operating margin rose by 23.9 percentage points over the last five years, as its sales growth gave it immense operating leverage. Its operating margin for the trailing 12 months was 16.1%.

One Reason to be Careful:

Previous Growth Initiatives Haven’t Paid Off Yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Marvell Technology has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 0.7%, meaning management lost money while trying to expand the business.

Final Judgment

Marvell Technology’s merits more than compensate for its flaws, and with its shares outperforming the market lately, the stock trades at 25.9× forward P/E (or $106.40 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More Than Marvell Technology

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