Marvell Stock: Valuation Still Matters – Be Patient (NASDAQ:MRVL)


Silicon wafers and microcircuits with automation system control application

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Investment thesis

Marvel Technology, Inc. (NASDAQ: MRVL) has performed significantly lower than its peers and the broad market, with a drop of more than 50% from the previous year (at the time of writing). Despite posting a solid FQ1’23 earnings card in May, the market has continued to digest its growth premium.

However, investors should not be surprised, as their revenue growth is expected to slow markedly from year 23 onwards, with year 22 at most. As a result, we believe the market has justifiably hit the diversified semi-leader to moderate future expectations.

Our valuation analysis indicates that the market expects MRVL to continue to perform lower even at current levels.

We haven’t observed a bear trap (significant rejection of the sell momentum) that will help curb its bearish bias. Therefore, price action signals remain provisional.

Therefore, we consider MRVL as momentary retention. We ask investors to be patient in waiting for a better entry point to improve their higher return potential in the future.

The market is lowering its expectations about Marvel

Marvel is a high quality semi-leader with solid profitability. The company is also expected to be less affected by headwinds faced by its peers with a large number of consumers, given its company / data center-focused revenue profile. Marvell stressed in its first-quarter call that “nearly 90% of its revenue came from data infrastructure projects, not from the consumer.”

However, Micron’s recent earnings call (MU) discussed the possibility of a cut in business spending. He suggested that a possible recession could spur companies to moderate their prospects and affect their investments, affecting demand.

Therefore, investors are asked to consider that nothing is sacred when the need to preserve cash flow and increase the capital cushion has a higher priority, given the worsening of macro adverse winds.

Consensus estimates% Marvell revenue change and% adjusted EBIT change

Consensus estimates% Marvell revenue change and% adjusted EBIT change (S&P No IQ)

In particular, even generally bullish consensus estimates indicate a marked slowdown in revenue growth from fiscal year 23. The Street expects Marvell to increase revenue by 38.6% in fiscal year 23, below of the maximum growth of 50.3% in fiscal year 22. Marvell’s revenue growth is expected to normalize even further during fiscal year 24, reaching 17.7% significantly lower.

However, Marvell’s inherent operating leverage helps maintain its profitability growth, as seen in its adjusted EBIT growth estimates.

Marvell adjusted EBIT% margins and FCF% margins consensus estimates

Consensus estimates% of Marvell’s adjusted EBIT margins and% of FCF margins (S&P Cap IQ)

In addition, Marvell is expected to continue to improve its adjusted EBIT margins, in line with the long-term guidance of 38-40%. Marvell’s free cash flow (FCF) margins are also expected to remain strong despite the significant slowdown in revenue growth.

Therefore, we believe that Marvell’s profitability profile looks excellent, which probably helped boost its bullish momentum over the past two years, as MRVL outperformed.

MRVL – Deeply rooted in a bearish bias

MRVL price chart

MRVL Price Chart (TradingView)

Despite the bullish estimates and solid guidance offered by management, we urge investors to pay close attention to MRVL’s price action.

The rapid renovation from September to December 2021 quickly attracted buyers to the top. However, investors are urged to avoid adding to this price action marked “inflexible,” as they often predict notable highs prior to major sales.

However, the bull trap (significant rejection of the buying impulse) that was seen in late March 2022 was the one that broke the camel’s back. It put an end to MRVL’s bullish momentum and reversed it decisively in a bearish flow.

As a result, MRVL has been deeply involved in its bearish momentum with no signs of a bear trap yet. Therefore, its price action remains provisional. The rejection of the buying momentum seen in its short-term resistance ($ 60) was significant and helped shape our valuation model discussed later.

MRVL could perform lower than the market

The MRVL was last traded with an NTM FCF yield of 6.15%, well above its five-year average of 4.81%. In particular, the market rejected the buying momentum (although there was no upward price action from the bullish trap) on its short-term resistance when MRVL was trading at an FCF yield of 4.4%.

Therefore, we believe that the market expects MRVL to perform below its historical average, moving forward, which can be easily seen in our valuation model.

Stock MURLY
Current market capitalization $ 36.16 million
Obstacle Rate (CAGR) 21.82%
Projection through CQ4’26
FCF performance required in CQ4’26 4.81%
Assumed margin TTM FCF in CQ4’26 28%
Implicit TTM revenues for CQ4’26 $ 15.1 million

MRVL reverse cash flow valuation model. Data source: S&P Cap IQ, author

Our reverse cash flow valuation model indicates that MRVL is unlikely to repeat its average performance over the past five years.

MRVL recorded a 5-year total return CAGR of 21.82%, which we applied as an obstacle rate. However, our model requires Marvel to announce a TTM revenue of $ 15.1 million for CQ4’26, which is unlikely according to current consensus estimates.

However, we used a more conservative FCF margin of 28% to account for a reasonable safety margin. Therefore, we believe that the market demands higher returns from FCF to account for a lower implicit obstacle rate.

Is MRVL a buy, sell or hold?

For now, we consider MRVL as a wait.

Given its declining revenue growth estimates, we believe the market has properly digested MRVL to moderate expectations. However, its robust profitability is expected to support its valuation, despite the slowdown in revenue growth.

Our analysis of price action suggests that its signals remain provisional. However, we do not expect MRVL to fall into its COVID fund and we believe that a building fund may not be much below it. Therefore, we will closely monitor a bearish trap price action that may suggest a sustained fund to reverse its bearish bias.



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