Vicor (VICR): Buy, Sell, or Hold Post Q1 Earnings?

What a brutal six months it’s been for Vicor. The stock has dropped 20.1% and now trades at $42.45, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Vicor, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is Vicor Not Exciting?

Even though the stock has become cheaper, we don't have much confidence in Vicor. Here are three reasons why VICR doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Vicor grew its sales at a mediocre 7.2% compounded annual growth rate. This was below our standard for the industrials sector.

2. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Sadly for Vicor, its EPS declined by more than its revenue over the last two years, dropping 12.9%. This tells us the company struggled to adjust to shrinking demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Vicor’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Vicor’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 27× forward P/E (or $42.45 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.

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