Here’s Why Vicor Stock Seems To Have Peaked

After a strong 150% rise since the March low of this year, at the current price of around $82 per share we believe Vicor stock (NASDAQ: VICR) has reached its near term potential. Vicor, a modular power component manufacturer, has seen its stock rally from $33 to $82 off its recent bottom compared to the S&P which moved 50%. During the crash seen in late February, Vicor stock dropped 41% compared to the S&P 500, which fell by about 34%. Further, the stock is up nearly 4x from its early 2018 levels, two years ago.

Vicor stock has risen more than 150% higher from the market’s low in March, and this seems to make it fully valued as, in reality, demand and revenues will likely drop over the latter part of the year.

Vicor stock rose over the last 2 years, due to a 12% rise in revenue per share (RPS), helped by a 15% growth in revenue that outweighed a 3% rise in the outstanding share count.

While the company has seen slow revenue growth over recent years, its Price-to-Sales multiple (P/S) jumped from 4x in 2017 to 7x in 2019. Further, this year the P/S multiple has shot up to over 12x, with Vicor’s products expected to see a surge in demand owing to US-China tensions. However, we believe there is some potential downside when we consider the mixed impact of the current scenario on the company’s business. Our interactive dashboard What Factors Drove 292% Change in Vicor  Stock between 2017 and now? has the underlying numbers.

So what’s the likely trigger and timing for this downside?

Vicor announced its Q2 results last month and reported a YoY growth in sales from $63.35 billion to $70.76 billion. However, rising cost of sales and R&D expenses weighed down net income, with EPS unchanged at $0.06. We believe that despite the present situation, a 75% rise in P/S since the start of the year is not fully justified, as the company has struggled with profitability in the past, amidst steadily rising COGS. As seen in the latest quarter, a growth in revenue has again failed to translate into a rise in profitability.

Due to this, we believe the stock will see its P/S decline from the current level of around 12.5x to around 10x, which even if combined with a slight rise in revenues and margins, could still result in the stock price shrinking to around $70.

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