3 Reasons MRVL is Risky and 1 Stock to Buy Instead

What a brutal six months it’s been for Marvell Technology. The stock has dropped 30.6% and now trades at $62.33, rattling many shareholders. This might have investors contemplating their next move.

Is now the time to buy Marvell Technology, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Marvell Technology Not Exciting?

Despite the more favorable entry price, we're swiping left on Marvell Technology for now. Here are three reasons why we avoid MRVL and a stock we'd rather own.

1. Revenue Tumbling Downwards

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a stretched historical view may miss new demand cycles or industry trends like AI. Marvell Technology’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.3% over the last two years.

2. Operating Losses Sound the Alarms

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Although Marvell Technology was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 11.4% over the last two years. Unprofitable semiconductor companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Marvell Technology’s five-year average ROIC was negative 2.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the semiconductor sector.

Final Judgment

Marvell Technology isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 22.5× forward P/E (or $62.33 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.

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