Key Takeaways:
- Marvell Technology’s stock is currently trading at around $86 per share, with a 5.9% gain over the last week and a 3.2% gain over the past month.
- The stock has a -23.8% year-to-date return and -25.2% return over the last year, despite a 147.4% gain over three years and 85.6% over five years.
- Marvell scores a 5/6 on valuation checks, suggesting it is undervalued on most metrics.
- A Discounted Cash Flow model estimates the stock is about 5.0% undervalued, with an intrinsic value of roughly $91.07 per share.
- The price-to-earnings ratio suggests the stock is modestly undervalued, with a current PE ratio of 29.65x compared to a Fair Ratio of 35.15x.
Introduction to Marvell Technology’s Valuation
Marvell Technology’s stock has been a topic of interest for investors, with its current price of around $86 per share sparking debate about whether it is a bargain or a value trap. The stock has experienced significant fluctuations in recent months, with a 5.9% gain over the last week and a 3.2% gain over the past month. However, its year-to-date return of -23.8% and -25.2% return over the last year have raised concerns about its valuation. In this article, we will explore Marvell’s valuation using various metrics, including a Discounted Cash Flow model and price-to-earnings ratio.
Discounted Cash Flow Model
A Discounted Cash Flow model estimates the value of a business by projecting its future cash flows and discounting them back to today’s dollar value. For Marvell Technology, the model used is a 2-Stage Free Cash Flow to Equity approach. The company currently generates around $1.50 billion in free cash flow, and analyst forecasts expect this to rise to around $5.59 billion by 2030. Further projections out to 2035 continue to grow from this base, reflecting expectations of sustained demand for AI-focused data center and high-speed connectivity solutions. When these future cash flows are discounted back to today, the DCF model produces an intrinsic value of roughly $91.07 per share, suggesting the stock is about 5.0% undervalued.
Price-to-Earnings Ratio
The price-to-earnings ratio is a useful yardstick for profitable companies like Marvell, as it ties the share price directly to the profits each share is entitled to. Investors are essentially asking how many dollars they are willing to pay today for one dollar of current earnings. Marvell currently trades at around 29.65x earnings, which is below both the broader semiconductor industry average of roughly 36.58x and a peer group average near 63.54x. Simply Wall St’s Fair Ratio, which reflects Marvell’s specific earnings growth outlook, margins, industry, market cap, and risk profile, is around 35.15x. Since the actual PE ratio is meaningfully below this Fair Ratio, the stock appears modestly undervalued on an earnings basis.
Narratives and Community Insights
There is an even better way to understand valuation, which is through Narratives, a simple way to connect your view of Marvell Technology’s future with hard numbers like revenue, earnings, margins, and ultimately fair value. A Narrative is your story for a company, written in financial terms, where you spell out what you think will happen to its business, and the platform translates that perspective into a forecast and a fair value estimate. On Simply Wall St’s Community page, Narratives are an easy tool that links the company’s story to a set of assumptions, a projected income statement and cash flows, and then a fair value that you can compare to today’s share price to decide if you want to buy, hold, or sell. You can also see how different investors interpret Marvell’s prospects, from a more cautious view closer to the lower analyst price target of about $58 per share to a more optimistic stance nearer $122.
Conclusion and Final Thoughts
In conclusion, Marvell Technology’s stock appears to be undervalued based on various valuation metrics, including a Discounted Cash Flow model and price-to-earnings ratio. The stock’s current price of around $86 per share is about 5.0% below its intrinsic value, according to the DCF model, and its PE ratio is modestly undervalued compared to its Fair Ratio. While there are risks and uncertainties associated with investing in the stock, the company’s positioning in AI-centric data center networking and custom silicon, along with its exposure to high-speed connectivity for cloud and 5G infrastructure, make it an attractive opportunity for investors. As with any investment, it is essential to do your own research, consider your own objectives and financial situation, and consult with a financial advisor before making any investment decisions.
