Is The Time Ripe To Build Position In Marvell Technology?

A successful portfolio manager understands the importance of adding well performing stocks at the right time. Indicators of a stock’s bullish run include a rise in its share price and strong fundamentals.

Below we have evaluated one technology company that has demonstrated remarkable share price performance so far this year. Marvell Technology Group Ltd. (NASDAQ:MRVL) generated high returns for investors in the last one year and has the potential to exceed expectations in the days ahead.

The stock gained approximately 81.7%, outperforming the Zacks categorized Semiconductor-Communications industry’s return of 73.3%.

Let’s look at the reasons behind Marvell’s solid momentum.

What’s Driving the Stock?

Marvell is a promising player in the solid state drive (SSD) controllers market. Over the coming years, it expects an increasing number of PCs/servers to use flash-based solid state technology for storage. The storage market is seeing a steady increase in demand, given fast growing data volume, especially the exponential growth in unstructured data. NAND (non-volatile storage technology) demand is likely to remain robust this year as well.

SSD demand will also increase and could even surpass manufacturing capacity, leading to periodic shortage and higher pricing in the near term. Marvell is benefiting from growing demand for SSD products. This is evident from the company’s first-quarter fiscal 2018 revenues from the storage end market, which accounted for majority of total revenues.

Furthermore, we believe that the strong demand for Marvell’s 4G LTE products could be a key growth driver. This will be supported by growth from the company’s wide range of recently launched Internet of Things (IoT) solutions.

In addition, the company’s recent restructuring initiative will help Marvell improve its cloud infrastructure and applications, which are anticipated to drive the top line. The latest buyback scheme also reflects its sound financial position and favorable prospects.

Also, the company’s back-to-back four quarters of better-than-expected bottom-line results have boosted investor’s confidence over the stock. Apart from this, an encouraging second-quarter fiscal 2018 outlook provided in the last quarterly earnings conference call also makes us optimistic about its near-term performance.

Upward Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate for the current quarter and fiscal 2018 witnessed upward revisions. For the current quarter, the Zacks Consensus Estimate is pegged at 23 cents, up 3 cents from earnings of 20 cents projected 30 days ago. Similarly, the Zacks Consensus Estimate for fiscal 2018 is currently pegged at 94 cents compared with 83 cents projected 30 days ago.

Valuation Looks Attractive

From a valuation perspective, the stock looks attractive as it is currently trading significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. Marvell currently trades at a forward P/E of 18.9x compared with the industry group average of 25.2x.

Hence, there is still much momentum left in this Zacks Rank #1 (Strong Buy) stock, which is quite evident from its VGM Style Score of “B” and long-term earnings growth rate of 15.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Keeping these positives in mind, we believe that Marvell is one such technology stock that deserves a place in investors’ portfolio.

Other Key Picks

A few other stocks worth considering in the broader technology sector are Applied Optoelectronics Inc. (NASDAQ:AAOI) , Broadcom Ltd. (NASDAQ:AVGO) and FormFactor Inc. (NASDAQ:FORM) . While Applied Optoelectronics and Broadcom sport a Zacks Rank #1, FormFactor carries a Zacks Rank #2 (Buy).

Applied Optoelectronics, Broadcom and FormFactor have expected long-term EPS growth rate of 20%, 13.6% and 16%, respectively.

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