Last update on 2024-06-06

Monolithic Power Systems (MPWR) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Monolithic Power Systems (MPWR) Piotroski F-Score Analysis for 2023: Final score of 4/9 reflecting profitability, liquidity, and leverage insights.

Short Analysis - Piotroski Score: 4

We're running Monolithic Power Systems (MPWR) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is a system used to evaluate a company's financial strength, ranging from 0 to 9. Monolithic Power Systems (MPWR) scored 4 out of 9. The company's net income and cash flow from operations are both positive, and the operating cash flow is higher than the net income, showing operational efficiency. Additionally, MPWR's current ratio has improved, indicating strong liquidity. However, some metrics raised concerns: the return on assets (ROA) has decreased, leverage has increased, and there has been a small dilution in shares. Also, the gross margin and asset turnover ratios have declined, showing some difficulties in profitability and efficiency.

Insights for Value Investors Seeking Stable Income

With a Piotroski F-Score of 4, Monolithic Power Systems (MPWR) shows both strengths and weaknesses. While the company is profitable and has strong liquidity, the decreasing ROA, increasing leverage, share dilution, declining gross margin, and reduced asset turnover are concerning. For potential investors, this stock may require closer scrutiny, especially around the areas where it is underperforming. Consider investigating these red flags further before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Monolithic Power Systems (MPWR)

Company has a positive net income?

Net income is a critical indicator of a company's profitability. It is essential to assess whether the company is making financial gains or losses.

The net income for Monolithic Power Systems (MPWR) in 2023 is $427,374,000, which is a positive figure. Historically, the company has experienced fluctuations in net income over the last 20 years, with significant growth observed particularly after 2015. For instance, the net income increased dramatically from $351,720,000 in 2015 to a peak of $437,672,000 in 2022. The positive net income in 2023 maintains the trend and showcases the company's consistent profitability, adding 1 point to its Piotroski score for this criterion.

Company has a positive cash flow?

Positive Cash Flow from Operations (CFO) signifies that a company is generating sufficient cash from its core business activities, indicating strong operational efficiency.

For the year 2023, Monolithic Power Systems (MPWR) reported a positive Cash Flow from Operations of $638.213 million. This is a markedly positive figure, adding 1 point to the Piotroski F-Score. Observing the trend over 20 years, MPWR's CFO has shown a robust improvement, growing from negative $2.952816 million in 2003 to the current $638.213 million. This enduring upward trajectory showcases the company's steady expansion and the efficacy of its strategic business operations, which is a very good sign for investors.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures the efficiency of a company in generating profits from its assets. An increasing ROA indicates better asset use.

The ROA for Monolithic Power Systems (MPWR) decreased from 0.2402 in 2022 to 0.1902 in 2023. This represents a drop, indicating that the company has been less efficient in generating profits from its asset base as compared to the previous year. Over the past 20 years, the ROA of MPWR has seen fluctuations, but in recent years it has generally been on a positive trend. Comparing this to the industry median ROA shows that MPWR consistently performs below the industry median. This decrease in ROA is a concerning trend because it suggests a decline in operational efficiency. Consequently, MPWR would receive 0 points for the ROA criterion in the Piotroski analysis.

Operating Cashflow are higher than Netincome?

Operating cash flow is the cash generated from the normal operations of a company. Comparing this with net income is important because it signals how well the company’s operating activities are generating cash.

In 2023, Monolithic Power Systems (MPWR) reported an operating cash flow of $638,213,000 compared to a net income of $427,374,000. The operating cash flow surpasses net income by $210,839,000, indicating a strong ability to generate cash from operations. Given this trend is positive, as it suggests robust operational efficiency — the company earns 1 point on this Piotroski criterion. The extensive historical data also shows a general upward trend in operating cash flow, suggesting consistent operational performance.

Liquidity of Monolithic Power Systems (MPWR)

Leverage is declining?

Change in Leverage: Leverage measures the degree to which a company is utilizing borrowed money. If leverage decreases, it implies the company is less reliant on debt financing.

The Leverage of Monolithic Power Systems (MPWR) has increased from 0.0008 in 2022 to 0.0023 in 2023, indicating a higher reliance on debt financing. In other words, this implies that MPWR is using more debt compared to the previous year. Observing the historical leverage data for the last 20 years, periods of zero leverage, i.e., no debt financing, were prevalent until recent years. An increase in leverage could be seen as a riskier financial position for the company. Therefore, this trend is negative for this criterion, resulting in a score of 0.

Current Ratio is growing?

A rising current ratio indicates that the company's liquidity has improved, meaning it can cover short-term liabilities more effectively.

In 2023, Monolithic Power Systems (MPWR) experienced an increase in its Current Ratio, moving from 5.3554 in 2022 to 7.7414. This increase grants MPWR an additional point in Piotroski's analysis framework, suggesting a positive trend in the company’s liquidity. Historically, MPWR's current ratio has consistently surpassed the industry median. For instance, in 2008, its current ratio was 5.5346 compared to the industry’s 3.6519, and in 2022, MPWR reported 5.3554 against the industry’s 2.8342. The continuous outperformance highlights MPWR's strong ability to manage its short-term obligations, benefiting its overall financial stability.

Number of shares not diluted?

The change in shares outstanding helps investors understand whether a company is diluting shareholder value or managing to buy back shares, which is crucial in value investing.

The Outstanding Shares for Monolithic Power Systems (MPWR) increased from 46,727,000 in 2022 to 47,610,000 in 2023. This was an increase of approximately 1.9%. Generally, a decrease in outstanding shares is considered positive as it might indicate stock buybacks, which often signal a company's confidence in its own value. However, in this case, the increase adds no extra points in the Piotroski score. Moreover, reviewing the historical trend over the last 20 years, it's clear that the outstanding shares have steadily increased almost every year. This consistent increase could indicate some level of dilution, which might be worth monitoring closely in further investment analysis.

Operating of Monolithic Power Systems (MPWR)

Cross Margin is growing?

Change in Gross Margin for Monolithic Power Systems and its significance.

The Gross Margin for Monolithic Power Systems (MPWR) reflects the company's financial health and its ability to efficiently manage production costs relative to revenue. Comparing the Gross Margin of 0.5607 in 2023 to 0.5844 in 2022, there is a decrease in Gross Margin, from 58.44% to 56.07%. This drop of approximately 2.37 percentage points indicates a decline in profitability. This factor is critical as it provides insight into the company's cost control measures and pricing strategies. Over the past 20 years, MPWR has mostly stayed above the industry median Gross Margin, notably higher than the industry which had a Gross Margin median of 49.19% in 2023. However, due to the decrease seen from the previous year, this criterion doesn't add to the Piotroski score.

Asset Turnover Ratio is growing?

Change in Asset Turnover assesses the firm's efficiency in using its assets to generate sales, comparing current asset turnover to previous year.

Analyzing Monolithic Power Systems (MPWR), the Asset Turnover decreased from 0.9845 in 2022 to 0.8106 in 2023. This decline indicates a reduction in efficiency, as the company generated less revenue per dollar of asset in 2023. Over the last 20 years, the Asset Turnover ratio has fluctuated, reaching its peak in 2005 at 1.1479 and its lowest in 2019 at 0.7177. This declining trend in 2023 is therefore concerning and deserves further attention. Consequently, this criterion scores 0 points.