Marvell Technology has been on fire lately. In the past six months alone, the company’s stock price has rocketed 47.1%, reaching $230.26 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now still a good time to buy MRVL? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why does MRVL stock spark debate?

Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.

Two positive attributes:

1. Skyrocketing revenue shows strong momentum

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Marvell Technology’s sales grew at an exceptional 22.3% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

2. Operating margin rising, profits up

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Marvell Technology’s operating margin rose by 14.5 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 16.5%.

One reason to be careful:

Previous growth initiatives haven’t paid off yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Marvell Technology has shown solid fundamentals lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.3%, lower than the typical cost of capital (how much it costs to raise money) for semiconductor companies.

Final judgment

Marvell Technology has huge potential even though it has some open questions, and with the recent rally, the stock trades at 43.1× forward P/E (or $230.26 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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