2023-12-17 04:34:31 ET
Summary
- Vicor is a leading power-module manufacturer that sells important parts to high-end AI semiconductor makers.
- Vicor's main opportunities include the rapidly expanding electric vehicle and green energy markets, making it a terrific buy-and-hold idea for growth-based returns.
- The valuation story and trading setup are the most compelling since early 2019, meaning any unexpected upturn in sales during 2024 could ignite an oversized rally soon.
Vicor Corp. ( VICR ) is a smaller but leading power-module manufacturer ($1.9 billion equity market cap), selling important parts to all the high-end artificial intelligence [AI] chip companies. There devices are not a part of every NVIDIA ( NVDA ), Advanced Micro Devices ( AMD ), Google ( GOOG ) ( GOOGL ), Intel ( INTC ), Cray, Marvell ( MRVL ) and Broadcom ( AVGO ) semiconductor offering, but they use Vicor items in many of their high-performance datacenter products.
The truly good news is this company owns many of the base patents its peers are using to sell similar devices to the big boys, while Vicor opened a new fab plant in America during 2022 to put together its product. A number of lawsuits against rivals/customers/competitors for patent infringement are expected by management in coming years. A longer description of 122 patents owned can be found in the 2022 10-K filing linked here (Intellectual Property, page 11).
In addition to the outsized 2023 demand for datacenter chips globally, the company's main opportunities include the quickly expanding electric vehicle and green energy marketplaces ( primarily solar ). So, if you want a buy idea that could theoretically capture amazing growth-based returns for shareholders over the next 5-10 years, Vicor should be near the top of your research list.
What's captured my attention over the last several weeks is its low price and valuation currently (after a monster -60% price decline from this summer) looks to be under investor accumulation again. One of my favorite bottom-searching formulas highlighted the stock in early December as having strong turnaround potential over the next 3-6 months.
The company has an A+ balance sheet, with $227 million in cash held vs. just $55 million in total liabilities at the end of September.
The short interest position remains very high. Why? Sales and backlog order growth have been spotty over the past year for a variety of short-term reasons, including getting a product line up and running for a new generation of devices, and a big drop in solar installations in America since spring. Looking forward instead of the rearview mirror, it is entirely possible the stock trading dud of 2023 could morph into a leading equity market gainer during 2024-25.
Company Homepage - December 16th, 2023
Valuation Getting Cheaper
Vicor's valuation has become quite cheap, as the share quote has declined far faster than underlying operational results. On price to trailing earnings and cash flow, VICR is sitting at a 10-year low today. Multiples on sales and book value are back to early 2018 levels.
YCharts - Vicor, Fundamental Ratio Analysis, 10 Years
When we include the balance sheet holding excess levels of cash not needed to run the company, the enterprise valuation on core EBITDA is clearly the lowest in over a decade, while EV to sales are back to 2017 levels (before datacenter and AI were a huge thing and electric vehicle, solar sales were a distance away from today).
YCharts - Vicor, Enterprise Valuations, 10 Years
With the drop in backlog orders during 2023, Wall Street analysts are projecting 2024 to be a transition year with little growth. This idea has created the selloff in shares, but also opened up the rare opportunity to buy a growth-name nearer a bargain valuation level. My thinking is the 2024-25 consensus forecast will prove way too pessimistic over time. I am using the estimates below as a worst-case scenario baseline in my modeling.
Seeking Alpha Table - Vicor, Analyst Estimates for 2023-25, Made December 15th, 2023
Technical Trading Roundup
Another bullish variable to consider is the short interest position in Vicor is abnormally high vs. its trading history and other stocks today. The percent of float short is right under 9%, down from 15% several months ago. The 2023 action by short sellers is very similar to 2018-19 fluctuations. Initially the rise in short interest pushed priced down, but then acted as support through short covering (the process of buying back to cover borrowed shares). There are a number of trading patterns from early 2019 that match up well with the late 2023 circumstance (marked with a green arrow). From that point, price rose from under $30 to over $160 a share by late 2021.
YCharts - Vicor, Short Interest Position vs. Share Price, 10 Years, Author Reference Point
For bullish short-term traders, the drop from $98 in late July to $36 in November was a horrific ride. Having never owned Vicor, I am quite grateful to have the opportunity to purchase shares on the cheap, AFTER the devastating price implosion, not before. Sitting at multi-year lows under $40 a few weeks ago, another rapid swing higher in price could be reality soon, especially to retrace the October price gap a little over $50 and retest the 200-day moving average above $52.
Of particular note, On Balance Volume has been acting better since late October. Plus, the 20-day Chaikin Money Flow and 14-day Ease of Movement calculations have risen into positive territory for the first time since early August. I peg decent price support in the upper-$30 to low-$40 area. So, if any good news is put out by management and/or shorts decide to cover aggressively, something of a vacuum in share supply daily could exist into January-February. Such would allow for a nice upturn in the share quote from $43 presently.
StockCharts.com - Vicor, 18 Months of Price & Volume Changes
Final Thoughts
I am not an expert on their technologies, but Seeking Alpha analyst John Dillon seems to have a good grasp on the evolving markets for Vicor products. Here is a link to his latest story posted in March.
Given $2.50 EPS by late 2025 (above current analyst consensus) and a growth-valuation multiple of 30x to 40x, I am coming up with a price target for Vicor in the $75 to $100 range over time. Such would be good for +75% to +140% in price appreciation potential over the next 24 months. Nothing spectacular mind you, but even greater price gains beyond 2025 look probable.
The upside outlier kicker beyond regular operating expansion is a major lawsuit win or two could add hundreds of millions or more to cash holdings by 2026. And, if product innovation, AI-chip sales, solar installation demand, and electric vehicle adoption continue to grow strongly, the long-term buy and hold proposition is excellent.
What could go wrong? Outside of a deep and prolonged recession in the global economy (about 60% of sales come from OEMs outside the U.S.), product order wins are a key metric to watch. If existing customers find competing power modules more valuable vs. the price paid, or new inventions leapfrog Vicor technologies, price could be stuck in the $30 to $50 price range for years. However, analyzing company prospects from industry-related articles, I am not overly concerned Vicor products will become obsolete anytime soon.
I rate shares a Buy and own a small position.
Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.
For further details see:
Vicor: Mispriced Chip Play On Cutting Edge AI, EV, Solar Functionality