Investors might want to bet on Monolithic Power (MPWR), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.
The upward trend in estimate revisions for this chipmaker reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
Consensus earnings estimates for the next quarter and full year have moved considerably higher for Monolithic Power, as there has been strong agreement among the covering analysts in raising estimates.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The company is expected to earn $4.89 per share for the current quarter, which represents a year-over-year change of +21.0%.
The Zacks Consensus Estimate for Monolithic has increased 9.76% over the last 30 days, as five estimates have gone higher compared to no negative revisions.
Current-Year Estimate Revisions
The company is expected to earn $21.63 per share for the full year, which represents a change of +21.7% from the prior-year number.
In terms of estimate revisions, the trend for the current year also appears quite encouraging for Monolithic. Over the past month, eight estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 5.1%.
Favorable Zacks Rank
Thanks to promising estimate revisions, Monolithic currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
Investors have been betting on Monolithic because of its solid estimate revisions, as evident from the stock's 21.7% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
