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Is There Now An Opportunity In Power Integrations, Inc. (NASDAQ:POWI)?

Simply Wall St

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Power Integrations, Inc. (NASDAQ:POWI), which is in the semiconductor business, and is based in United States, received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Power Integrations’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Power Integrations

What is Power Integrations worth?

Power Integrations appears to be overvalued according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 37.5x is currently well-above the industry average of 22.85x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Power Integrations’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Power Integrations?

NasdaqGS:POWI Past and Future Earnings, July 5th 2019

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a relatively muted profit growth of 0.07% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Power Integrations, at least in the short term.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in POWI’s outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe POWI should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on POWI for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Power Integrations. You can find everything you need to know about Power Integrations in the latest infographic research report. If you are no longer interested in Power Integrations, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.