Mellanox Technologies (MLNX) Hits Fresh Highs: Is There Still Room To Run?

Have you been paying attention to shares of Mellanox Technologies (NASDAQ:MLNX) ? Shares have been on the move with the stock up 9% over the past month. MLNX hit a new 52-week high of $80.55 in the previous session. Mellanox Technologies has gained 22.7% since the start of the year compared to the 2.7% move for the Computer and Technology sector and the 13.9% year-to-date return for its peer group.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, having beaten the Zacks Consensus Estimate in each of the last four quarters. In its last earnings report on April 17, 2018, Mellanox Technologies reported EPS of $0.98 versus the Zacks Consensus Estimate of $0.83 while it beat the consensus revenue estimate by 2.67%.

For the current fiscal year, Mellanox Technologies is expected to post earnings of $4.07 per share on $1.04 billion in revenues. This represents a 78.51% change in EPS on a 20.72% change in revenues. For the next fiscal year, the company is expected to earn $4.53 per share on $1.12 billion in revenues. This represents a year-over-year change of 11.28% and 7.84%, respectively.

Valuation Metrics

Mellanox Technologies may be at a 52-week high right now, but what might the future hold for MLNX? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Mellanox Technologies has a Value Score of D. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 19.5X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 26.7X versus its peer group's average of 12.8X. Additionally, the stock has a PEG ratio of 1.3. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Mellanox Technologies, Ltd. Price and Consensus

Mellanox Technologies, Ltd. Price and Consensus | Mellanox Technologies, Ltd. Quote

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Mellanox Technologies currently has a Zacks Rank of #1 (Strong Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 or 2 (Buy) and Style Scores of A or B, it looks as if Mellanox Technologies fits the bill. Thus, it seems as though MLNX shares could still be poised for more gains ahead.

How Does Mellanox Technologies Stack Up to the Competition?

Shares of Mellanox Technologies have been rising, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also looking good, including SMART Global Holdings (NASDAQ:SGH) , Micron Technology (NASDAQ:MU) , and Microchip Technology (NASDAQ:MCHP) , all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Mellanox Technologies. Still, the fundamentals for MLNX are promising, and it still has potential despite being at a 52-week-high.