Marvell Technology Inc (MRVL, Financial) experienced a daily loss of -3.62%, with a 3-month gain of 32.12%. Despite a Loss Per Share of 0.19, the question arises: is the stock modestly undervalued? This article provides a comprehensive valuation analysis of Marvell Technology, encouraging readers to delve into the financial intricacies of the company.
Company Introduction
Marvell Technology is a fabless chip designer with a significant market share in wired networking. The company serves various sectors, including data centers, carriers, enterprises, automotive, and consumer end markets, with processors, optical and copper transceivers, switches, and storage controllers. With a current stock price of $59.28 and a GF Value of $68.86, Marvell Technology appears to be modestly undervalued. This valuation is based on the company's market cap of $51 billion and sales of $5.80 billion.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Marvell Technology's stock is estimated to be modestly undervalued based on the GF Value calculation. Given this undervaluation, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial strength. Marvell Technology has a cash-to-debt ratio of 0.21, which is worse than 89.63% of 820 companies in the Semiconductors industry. The overall financial strength of Marvell Technology is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Marvell Technology has been profitable 5 times over the past 10 years. Over the past twelve months, the company had a revenue of $5.80 billion and a Loss Per Share of $0.19. Its operating margin is 2.61%, which ranks worse than 64.85% of 936 companies in the Semiconductors industry. Overall, GuruFocus ranks the profitability of Marvell Technology at 6 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Marvell Technology is 20.3%, which ranks better than 69.6% of 865 companies in the Semiconductors industry. The 3-year average EBITDA growth is -2.4%, which ranks worse than 79.95% of 768 companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Marvell Technology's ROIC was 0.66 while its WACC came in at 13.17.
Conclusion
In summary, the stock of Marvell Technology (MRVL, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 79.95% of 768 companies in the Semiconductors industry. To learn more about Marvell Technology stock, you can check out its 30-Year Financials here.
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