Summary
- On Friday, Vicor stock was down 27.5% on 9.5x average daily volume due to yet another disappointing quarterly report.
- As I have reported in my previous Seeking Alpha articles, with Vicor's rich valuation level, there was no room for another weak quarter.
- Yet the report indicated a book-to-bill ratio of "far below 1" and that backlog was quickly being eaten up. Investors, finally, ran out of patience with the company.
- Even after the stock's plunge on Friday, VICR still trades at a rich valuation level, with a TTM P/E=71.7x and a forward P/E = 36.2x.
I've been contributing on Seeking Alpha since 2008, and - based on comments to my previous articles on Vicor ( VICR ) - the company has some of the most loyal perma-bulls of any stock I have ever covered. I say that because they have maintained, for many quarters now, that the company deserved what I considered to be a very rich valuation that was simply not rational given the company's operational and financial performance. The next quarter will always be great ... then another disappointment and more excuses - but the next quarter would be great! Well, the Vicor perma-bulls got a big-dose of reality last week with yet another very weak quarterly report that wrapped up a poor FY22. And the stock, finally, dropped like a rock (27.5%):
So is Vicor now a great value and is it time to jump in? Let's take a look.
Q4 Earnings
From my perspective, and on the surface, Vicor's Q4 report wasn't a whole lot different from previous reports:
- Revenue of $105.5 million (+16.9% yoy) was a $2.27 million beat .
- GAAP EPS of $0.18/share was a $0.02 miss.
- Gross margin, as a percentage of revenue, actually increased to 46.6%, up 1.1 percentage points from the previous quarter.
That's the good news. The bad news was that in the earnings release Vicor CEO Patrizio Vinciarelli said:
Demand has fallen short of last year’s peak and is anticipated to stay subdued until new AI, datacenter and automotive applications using advanced Power Distribution Networks (PDNs) get to production ramps. The Q4 book-to-bill came in far below 1 while backlog, which declined to $304 million, can only support essentially flat quarterly revenue in the near term.
That certainly does not bode well for the future. Indeed, we found out on the Q4 conference call that the backlog declined 18.1% from the prior quarter and that Q4 bookings included cancellations .
Then the call went on to describe how rosy multiple markets are for Vicor - or at least will be rosy in the future. Hyperscalers, high-performance computing ("HPC"), automotive, and AI - all these markets will be great for Vicor and have big TAMs. But just not now ... just wait a while longer ... because in the "near term" investors can expect only "essentially flat quarterly revenue".
This is the same song and dance we have heard many times before from Vicor. It's always something ... waiting for a customer to "ramp-up" ... waiting for new manufacturing capacity to "ramp up" ... always waiting ... waiting for things to get better and to meet management's and investors' high expectations (and to justify the rich market multiple).
Perhaps the picture at the top of this article speaks a thousand words - that is, fan-cooling on an Nvidia high-performance graphics card without a Vicor "brick" in sight. Sure, there could be some bricks underneath the cooling apparatus, but - just perhaps - not.
I mention that anecdote because Nvidia ( NVDA ), a big customer of Vicor (at least in the past), just reported better than expected results due to a big snap-back in high-end gaming . EV sales are booming and last month, AMD ( AMD ) reported a much better quarter than expected while AMD CEO Lisa Su said that AMD expects its data center to remain strong.
But - for some reason - Vicor isn't seeing this strength result in growing orders ... shareholders are expected to wait for things to get better ... just not in the "near term" ... perhaps in the mid- or long-term? Your guess is as good as mine because, in my opinion, VICR management is less than transparent on what the future holds.
I say that because, on the conference call, Vicor management never did say exactly what the book-to-bill number was, just that it was "far below 1". But 0.9 is "far below 1" in my book ... but so too is 0.7. So what was it? We don't know because management didn't tell us on the conference call what it actually was (or if they did, I missed it). And check out this exchange taken from the previously referenced conference call:
John Dillon (D&B Capital)
So just had a question, Phil, we are pretty far into the quarter. I am just wondering how bookings are so far this quarter?
Phil Davies (Vicor VP Global Sales & Marketing)
I don’t think we can get specific about that, right. We are talking about halfway through the quarter. Yes, but certainly the rates are…
Patrizio Vinciarelli (Vicor CEO)
So let’s not get into specifics, that the general policy we don’t get into. Again, I think both Phil and I have emphasized in the strongest terms that we believe we have the winning technology. Our technology gap to the competition is widening, not shrinking. And that’s something that applies to HPC. It applies to automotive as we heard earlier from Phil it also applies to some of the industrial markets and other markets. So we feel very strongly that we are going to use up the capacity that we are putting in place, second little longer than anticipated, but it’s a major undertaking. And we see the returns on that investment taking place in years to come. So as to what is happening this month with respect to bookings, what is going to happen this quarter beyond the general guidance that Jim provided earlier, I don’t think we are going to get into any specifics.
Mr. Dillon was obviously trying to get some insight into how sales were going in Q1 of this year, but note how the CEO cut-off the VP of Global Sales & Marketing just as he was going to give some insight into the question ("Yes, but certainly the rates are ..."). Are what? We will never know. But the CEO maintains "we have the winning technology", right? I guess it's just taking a "little longer than anticipated" for the world to wake-up to that fact because, for some reason, this is a "major undertaking" for Vicor.
The market has obviously lost patience with Vicor management and investors sold the stock in droves on Friday - down 27.5% on volume of 2.655 million shares, ~9.5x the average daily volume.
Valuation
Despite the stock drubbing on Friday, note that Vicor is still very richly valued. TTM GAAP earnings for full-year 2022 were $0.57/share. With the stock closing Friday at $40.85, that is a TTM P/E = 71.6x .
Looking forward, current consensus estimates, according to Yahoo Finance , are for FY23 EPS of $1.13/share:
That indicates a forward P/E of 36.2x , still a very rich premium to the S&P500. That is especially the case considering Vicor's earnings shrunk by over 50% yoy (from $1.26 in FY21 to $0.57/share in FY22).
In addition, note that the consensus estimates reported above likely have not been updated (i.e. downgraded ...) after the very weak report on Friday. Note that previous consensus estimates for FY22 were way off (i.e. $0.72/share versus the actual $0.57/share delivered). So, the $1.13/share estimate is likely to come down significantly in my opinion, making the forward P/E rise even further.
Meantime, note that investor sentiment, at least on Seeking Alpha, is still overly bullish. I say that because - despite a low Seeking Alpha Equity Factor Grade (see below) - a glance at the Seeking Alpha Vicor webpage shows I am the only contributor shown on the page with a sell rating.
Summary & Conclusion
In my opinion, Vicor's quarterly report Friday wasn't that much different from the company's performance in the past: generally weaker than expected. But the outlook going forward was even weaker than expected (i.e., book-to-bill "far below 1" and guidance for "essentially flat revenue in the near-term"). However, the market finally lost patience with Vicor and sold-off big-time on Friday. While there may be some buying by Vicor perma-bulls on Monday hoping to take advantage of the plunge, and by short-selling covering, the stock is still very richly valued in my opinion and is still a SELL. I wouldn't be interested in Vicor unless it fell to the low $20 level and was given a market multiple. But even then, what is the compelling investment theme? After all, Vicor obviously doesn't have a compelling product line, or else the book-to-bill wouldn't be "far below 1" and the backlog wouldn't be declining, right?
Meantime, as I advised my followers in my last article on Vicor, investors looking for growth in the technology sector would be much better off in a high-quality company like Broadcom ( AVGO ). Broadcom is the opposite of Vicor - it typically under-promises and over-delivers. As I reported in my Seeking Alpha article What To Expect From Broadcom's Upcoming Earnings (the company reports on March 2), all Broadcom did during the 2022 technology bear-market was:
- Grow revenue 21%
- Grow earnings by 76.9%
- Grow the dividend by 12% to $18.40/share (3.18% yield).
- Generate $16.3 billion in free cash flow (49% of revenue)
Yet Broadcom currently trades with a TTM P/E of only 21.8x. Now THAT is a growth company worth investing in.
For further details see:
Vicor Perma-Bulls Get Whacked By Another Disappointing Quarter