Data infrastructure semiconductor company Marvell Technology, Inc. (MRVL - Get Rating) has maintained its momentum despite the current slowdown in the semiconductor industry due to global supply constraints. This is evident in MRVL’s 23.6% gains over the past month, versus the iShares PHLX Semiconductor ETF’s (SOXX) 9.2% returns over this period. Shares of MRVL have gained 6.5% over the past five days, while SOXX returned 2%.

MRVL’s latest earnings report, released on June 7, accelerated its momentum. The stock has gained 10% since the earnings report to close yesterday’s trading session at $53.59. While the company’s rising revenues and declining losses year-over-year appealed to investors, a closer look at the report reveals poor financial performance compared to the prior quarter. MRVL’s non-GAAP revenues for its fiscal first quarter, ended May 2, was  $832.23 million, up 20% year-over-year. The company’s revenues increased 4.3% sequentially. However, despite this improvement in its top line, MRVL’s non-GAAP gross profits declined marginally from the prior quarter to $481.14 million. And its operating loss rose 4,641.4% sequentially to $82.31 million.

MRVL reported an $88.24 million net loss for this period. This compares to $16.54 million in net income reported in the prior quarter. Its loss per share increased 750% sequentially to $0.13. And its cash outflow from operating activities came in at $13.73 million, compared to $175.63 million in cash inflow in the prior quarter.

Because the global semiconductor shortage is expected to continue for the remainder of 2021, MRVL’s financials are expected to remain weak in the coming quarters.

Click here to checkout our Semiconductor Industry Report for 2021

Here’s what we think could shape MRVL’s performance in 2021:

Global Semiconductor Shortage

MRVL has been moving  to dominate the 5G industry by consolidating its position as a key semiconductor supplier. The company acquired Inphi Corporation for $10 billion in April to create a “U.S. semiconductor powerhouse and positioned for end-to-end technology leadership in data infrastructure.”

However, MRVL’s CEO and President said earlier this year that the current supply gap is likely to continue for the remainder of this year. He said, “the supply chain was not completely prepared for the surge in demand and needs time to increase capacity.” The current semiconductor shortage will likely affect MRVL’s financials through its  fiscal year 2022, which ends January next year.

Earnings Outlook

MRVL expects its revenues for its fiscal second quarter, ending July 31, to be around $1.07 billion, indicating a 23.2% rise sequentially. Its GAAP gross margin is expected to be in the range of 34.8% – 37.5%. This indicates a steep decline from the 50.2% gross margin it reported in the most recent quarter. The  company’s loss per share is expected to be $0.37 over this period. MRVL expects to incur $109 million and $111 million expenses for amortization of intangible assets and share-based compensation, respectively. Also, it expects its restructuring related expenses to be approximately $30 million in the current quarter.

Trading at a Premium Valuation

In terms of non-GAAP forward P/E, MRVL is currently trading at 38.63x, which is 46.3% higher than the 26.41x industry average. Its forward Price/Sales and Price/Cash Flow ratios of 10.46 and 77.02, respectively, compare with  4.09 and 22.98 industry averages.

Also, MRVL’s 32.91 forward EV/EBITDA multiple is 90.9% higher than the 17.24 industry average.

POWR Ratings Reflect Bleak Outlook

MRVL has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

MRVL has a D grade for Value and Quality, and C for Stability. The stock’s premium valuation compared to its peers justifies the Value grade, while its 1.10 beta accounts for the Stability grade. The company’s negative return on sales, ROE and ROA justifies the Quality grade.

Of the 98 stocks in the B-rated Semiconductor & Wireless Chip industry, MRVL is ranked #83.

Beyond what we’ve stated above, one  can view additional MRVL Ratings for Momentum, Growth and Sentiment here.

Click here to view the top-rated stocks in the Semiconductor & Wireless Chip industry.

Bottom Line

Amid  current industry headwinds, MRVL’s growth is expected to remain suppressed for the remainder of 2021. Furthermore,  the company is currently  restructuring its debt and assets, which should increase its expenses. MRVL expects its bottom line to remain negative in the current quarter also, due to  operational expenses. Consequently, we  think  the stock is best avoided now.

Click here to checkout our Semiconductor Industry Report for 2021

MRVL shares were trading at $54.13 per share on Wednesday morning, up $0.54 (+1.01%). Year-to-date, MRVL has gained 14.00%, versus a 13.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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