Stock Analysis on Net
Stock Analysis on Net

Monolithic Power Systems Inc. (NASDAQ:MPWR)

Present Value of Free Cash Flow to Equity (FCFE) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Monolithic Power Systems Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 15.77%
01 FCFE0 580,635
1 FCFE1 636,083 = 580,635 × (1 + 9.55%) 549,427
2 FCFE2 703,100 = 636,083 × (1 + 10.54%) 524,576
3 FCFE3 784,113 = 703,100 × (1 + 11.52%) 505,319
4 FCFE4 882,193 = 784,113 × (1 + 12.51%) 491,074
5 FCFE5 1,001,244 = 882,193 × (1 + 13.49%) 481,415
5 Terminal value (TV5) 49,899,287 = 1,001,244 × (1 + 13.49%) ÷ (15.77% – 13.49%) 23,992,401
Intrinsic value of Monolithic Power Systems Inc. common stock 26,544,213
 
Intrinsic value of Monolithic Power Systems Inc. common stock (per share) $544.16
Current share price $593.22

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.79%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Monolithic Power Systems Inc. common stock βMPWR 1.22
 
Required rate of return on Monolithic Power Systems Inc. common stock3 rMPWR 15.77%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rMPWR = RF + βMPWR [E(RM) – RF]
= 4.79% + 1.22 [13.79% – 4.79%]
= 15.77%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Monolithic Power Systems Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Dividends and dividend equivalents declared 196,713 146,148 115,890 95,079 74,117
Net income 427,374 437,672 242,023 164,375 108,839
Revenue 1,821,072 1,794,148 1,207,798 844,452 627,921
Total assets 2,434,353 2,058,885 1,585,825 1,208,491 956,375
Stockholders’ equity 2,049,939 1,668,602 1,243,985 966,587 773,491
Financial Ratios
Retention rate1 0.54 0.67 0.52 0.42 0.32
Profit margin2 23.47% 24.39% 20.04% 19.47% 17.33%
Asset turnover3 0.75 0.87 0.76 0.70 0.66
Financial leverage4 1.19 1.23 1.27 1.25 1.24
Averages
Retention rate 0.49
Profit margin 20.94%
Asset turnover 0.75
Financial leverage 1.24
 
FCFE growth rate (g)5 9.55%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income – Dividends and dividend equivalents declared) ÷ Net income
= (427,374 – 196,713) ÷ 427,374
= 0.54

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 427,374 ÷ 1,821,072
= 23.47%

3 Asset turnover = Revenue ÷ Total assets
= 1,821,072 ÷ 2,434,353
= 0.75

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 2,434,353 ÷ 2,049,939
= 1.19

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.49 × 20.94% × 0.75 × 1.24
= 9.55%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (28,937,272 × 15.77% – 580,635) ÷ (28,937,272 + 580,635)
= 13.49%

where:
Equity market value0 = current market value of Monolithic Power Systems Inc. common stock (US$ in thousands)
FCFE0 = the last year Monolithic Power Systems Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Monolithic Power Systems Inc. common stock

FCFE growth rate (g) forecast

Monolithic Power Systems Inc., H-model

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Year Value gt
1 g1 9.55%
2 g2 10.54%
3 g3 11.52%
4 g4 12.51%
5 and thereafter g5 13.49%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 9.55% + (13.49% – 9.55%) × (2 – 1) ÷ (5 – 1)
= 10.54%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 9.55% + (13.49% – 9.55%) × (3 – 1) ÷ (5 – 1)
= 11.52%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 9.55% + (13.49% – 9.55%) × (4 – 1) ÷ (5 – 1)
= 12.51%