DCF Studio

    MPWR · NMS · Technology

    Monolithic Power Systems, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 230.84

    Market price

    USD 1217.80

    Implied upside

    -81.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 5.0% of revenue against depreciation of 2.0%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 75.0x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 230.84-81.0%
    Exit multiple
    USD 497.81-59.1%
    Market price
    USD 1217.80

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn1bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 3.2bnUSD 3.7bnUSD 4.3bnUSD 5.0bnUSD 5.8bn+15.9%
    EBITUSD 859.7mUSD 996.1mUSD 1.2bnUSD 1.3bnUSD 1.5bn+15.9%
    NOPATUSD 716.8mUSD 830.5mUSD 962.2mUSD 1.1bnUSD 1.3bn+15.9%
    Add depreciation & amortisationUSD 63.1mUSD 73.1mUSD 84.7mUSD 98.1mUSD 113.7m+15.9%
    Less capital expenditureUSD -162.9mUSD -188.7mUSD -218.7mUSD -253.4mUSD -293.6m+15.9%
    Less increase in working capitalUSD 105.6mUSD 122.3mUSD 141.7mUSD 164.2mUSD 190.2m-15.9%
    Free cashflow to firmUSD 722.5mUSD 837.2mUSD 969.9mUSD 1.1bnUSD 1.3bn+15.9%
    Discount factor0.94100.83310.73770.65310.5783-
    Present valueUSD 679.9mUSD 697.5mUSD 715.5mUSD 734.0mUSD 752.9m+2.6%
    Present Value Of The ForecastUSD 3.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.445Reported 1.664, pulled toward 1.0 (Blume)
    Cost of equity12.94%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 59.8bn100.0% of capital
    Total debtUSD 20.0m0.0% of capital, book value as a proxy
    Tax rate16.6%Effective, capped at statutory
    WACC12.94%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 230.84

    64% of EV

    Forecast FCFF, final year
    USD 1.3bn
    Capex at depreciation, working capital in reinvestment
    USD 1.3bn
    Less reinvestment at g/ROIC (13.6% of NOPAT)
    USD -175.5m
    Capitalised
    USD 1.1bn
    ROIC (reported)
    18.4%
    Terminal value, undiscounted
    USD 11.0bn
    Terminal value, discounted
    USD 6.3bn
    Enterprise value
    USD 9.9bn
    Less net debt
    USD -1.2bn
    Equity value
    USD 11.2bn

    Exit at 20.0x EBITDA

    Value per shareUSD 497.81

    84% of EV

    Terminal value, undiscounted
    USD 33.3bn
    Terminal value, discounted
    USD 19.2bn
    Enterprise value
    USD 22.8bn
    Less net debt
    USD -1.2bn
    Equity value
    USD 24.0bn

    Spread between methods: 73%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    10.94%268.61273.53278.97285.04291.87
    11.94%245.08248.56252.36256.54261.16
    12.94%225.67228.16230.84233.76236.94
    13.94%209.40211.18213.09215.13217.32
    14.94%195.56196.83198.18199.61201.12

    Outlined: this model. Green text: above today's price of 1217.80. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year15.9%68.4%+52.5pp
    Discount rate12.9%4.3%-8.7pp
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    Yahoo Finance and RBA data. General information, not advice. Methodology.