Maxim Integrated Products Stock Could Lose 15% Despite Demand Revival

UKRAINE – 2019/02/13: The Maxim Integrated Products corporate logo is shown… [+] displayed on a smartphone in this photo illustration. (Photo courtesy of Getty Images/Igor Golovniov/SOPA Images/LightRocket)
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Maxim Integrated Products stock (NASDAQ: MXIM) has gained about 20% since the beginning of the year, and we feel that at its current price of $104 per share, Maxim Integrated Products stock has a 15% potential downside.
What is the reason for this? Our judgment is based on the fact that MXIM stock has increased by more than twofold since the end of 2018, and after a mixed recent earnings pattern, we anticipate Maxim stock will continue to decline. What Factors Caused A 104 Percent Change In Maxim Integrated Products Stock Between 2018 And Now, According To Our Dashboard? gives the essential numbers that underpin our approach, and we go over them in greater detail below.

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Maxim Integrated Products is a designer and manufacturer of analog and mixed-signal integrated circuits. Despite flat revenues, Maxim’s stock price has risen since 2018. However, net margins increased from 18.8 percent to 31.8 percent during this time, and EPS (profits per share) increased from $1.66 in FY 2018 to $2.91 on an LTM basis, thanks to a 5% decline in outstanding shares.
Furthermore, Maxim’s P/E (price-to-earnings) ratio increased from 31x in 2018 to 37x by the end of 2020, but has subsequently fallen to 36x. Given Maxim’s inconsistent previous earnings performance, we feel the P/E multiple faces a probable downside risk.
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So, what’s the most likely cause of this downturn and when will it happen?
Because of the global spread of the coronavirus, demand for computing and hardware devices fell across all markets, resulting in lower semiconductor demand and lower demand for Maxim’s goods. Demand has recently increased, as seen by Maxim’s Q3 2021 earnings, which showed revenue of $665 million, up from $562 million in Q3 2020. Furthermore, operating margins increased to 37.2 percent in Q3 2020 from 32.6 percent in Q3 2020, owing to lower cost of sales and operating expenditures. This resulted in an increase in EPS, which increased from $0.60 to $0.82 over this time period.
It’s worth noting, though, that revenues in FY 2020 ($2.19 billion) appear to be lower than those in FY 2018, which totaled $2.48 billion. Despite demand and revenues increasing year over year in Q3 2021, we believe that the company’s overall revenue and profits performance since FY 2018 does not justify such a high P/E multiple. While Maxim’s FY 2021 earnings (expected in August 2021) will provide more clarity, we believe that the stock’s P/E multiple will decline from its current level of 36x to 31x in the near term, despite a slight increase in revenues and margins, resulting in a stock price decline to below $90, a 15% drop from its current price near $104.
While the stock of Maxim Integrated Products may fall, it is useful to know how it compares to its peers. Maxim Integrated Products vs. Peers summarizes how Maxim Integrated Products stacks up against its competitors on key parameters. Peer Comparisons has a lot more of these kinds of valuable comparisons.
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