Power Integrations Stock Is Sending Positive Signals (NASDAQ:POWI)

Silicon wafer for integrated circuit

shenjun gong/iStock via Getty Images

Power Integrations (NASDAQ:POWI) has been sliding along with the rest of the semiconductor space in 2022. However, a closer look shows how POWI has outperformed this year. POWI has also been sending a number of bullish signals lately. Some might find encouragement in all of this, although not everyone is likely to be onboard. Why will be covered next.

POWI is showing signs of strength

POWI is down 15% YTD. While that number might not seem so great, it’s better than what most in the semiconductor space have been able to do in 2022. For instance, the iShares PHLX Semiconductor ETF (SOXX) is down a much more hefty 30% YTD. POWI has thus outperformed by not falling as much.

POWI actually managed to trade in positive territory in March, being up as much as 6% in late March, which is an achievement considering the tough circumstances all year. In comparison, many semiconductor stocks have spent the entirety of 2022 in negative territory. Many have seen losses go up as 2022 has gone by in what can be described as a very difficult year for most stocks.

POWI chart

Source: finviz.com

In contrast, POWI is once again showing signs of underlying strength. The stock spent a couple of months in a downtrend with both the lows and the highs heading lower, However, it appears the stock has broken through the resistance imposed by the upper trendline as shown in the chart above. Notice how the stock fell back once it got above resistance, only to bounce off of what used to be resistance.

What used to be resistance tends to become support once there is a breakthrough and this appears to be what is happening now. Several attempts to pierce support have failed, a positive signal that support is holding strong. Furthermore, the stock has now managed to get back above the 50-day moving average, which is another bullish signal to take note of. If the charts are any indication, the stock is likely heading higher in the near term.

Why some pass on the opportunity to go long POWI

There are several reasons why people may want to take a look at POWI. The stock has outperformed in a tough year. The charts suggest the stock wants to move higher. If people were thinking of getting in on POWI and were waiting for the right moment, then now may be a good time with the stock hovering just above support.

However, while some may no longer have any doubts about POWI as to which way to go, others are unlikely to agree. For instance, it’s true POWI has not fallen as much as other semis, but the flip side is that valuations have not gone down as much as in the case of other semis. The table below shows the multiples POWI trades at.


Market cap


Enterprise value


Revenue (“ttm”)




Trailing P/E


Forward P/E


PEG ratio








Trailing EV/EBITDA




Source: Seeking Alpha

In general, POWI trades at a premium to most in the semiconductor space. For instance, the stock is valued at 5.69 times book value. In comparison, most trade at a lower multiple with the median at 3.2 times. POWI has an enterprise value of $4.19B, which equals 16 times EBITDA on a forward basis and 18.9 times EBITDA on a trailing basis. The sector median is 12.4x and 13.9x respectively.

There are question marks hanging over POWI

Valuations are not the only potential hurdle. There are other issues that may cause people to distance themselves from POWI. For instance, POWI has undergone a growth spurt that has raised some eyebrows as to what is behind the acceleration in growth, especially with POWI acknowledging the role of inventory building in giving the numbers a boost. FY2021 revenue, for instance, grew by 44% or $215M YoY, which is more than the previous ten years combined. A previous article covers this issue in greater detail.

In addition, while multiples are still up there, the pace of growth is coming down. For instance, FY2021 revenue ended the year up 44% YoY, but in the most recent report, revenue increased by just 4.8% YoY to $182.1M. On the other hand, the bottom line held up better than the top line. GAAP EPS increased by 18.5% YoY to $0.77 and non-GAAP EPS increased by 22.4% YoY to $0.93. The table below shows the numbers for Q1 FY2022.

The growth in EPS was in part due to higher margins, which were driven by increased manufacturing efficiencies, price increases and a better product mix. However, it’s worth mentioning that share buybacks played a role as well. POWI spent $135M to buy back 1.6M shares in Q1. As a result, the weighted-average share count stood at 60.1M in Q1, a decline of 1.2M QoQ. EPS growth in the coming quarters will continue to get a boost as the share buyback program has yet to run out of funds.


Q1 FY2022

Q4 FY2021

Q1 FY2021









Gross margin






Operating margin






Income from operations






Net income



















Gross margin






Operating margin






Income from operations






Net income












Source: POWI Form 8-K

The table below breaks down quarterly revenue by end market. Most segments did fine, but POWI continues to suffer from a slumping communications segment, which fell 12 points YoY. On the other hand, the communications segment did better in Q1 than it did in Q4. As mentioned before, the communications segment is dealing with an inventory overhang due to customers ordering more than they actually needed. These customers are now going through their inventory, resulting in them ordering less from POWI.

Q1 FY2022

Q4 FY2021

Q1 FY2021

















Guidance calls for Q2 FY2022 revenue of $185-195M, an increase of 5.5% YoY. Consensus estimates call for GAAP EPS of $0.83, an increase of $0.06 QoQ and $0.15 YoY, and non-GAAP EPS of $0.98, an increase of $0.05 QoQ and $0.15 YoY. POWI is projected to end FY2022 with non-GAAP EPS of $3.77-3.94, an increase of $0.51-0.68 YoY.

Q2 FY2022 (guidance)

Q1 FY2021

YoY (midpoint)





GAAP gross margin




Non-GAAP gross margin




Guidance did not extend beyond Q2, but management had some words as to the rest of FY2022. POWI expects the cost of goods to rise, which will negatively impact gross margins in the second half of the year. From the Q1 earnings call:

“I do expect higher wafer prices and other cost pressures to flow into the P&L as the year progresses, resulting in a tapering down of gross margin in the second half of the year. However, a near term outlook for gross margin has clearly improved, thanks to a combination of factors, including manufacturing efficiencies, the stronger dollar, the pricing environment and a richer mix.”

A transcript of the Q1 FY2022 earnings call can be found here.

Investor takeaways

POWI was in a slump for months with the stock gradually declining. However, while the stock is still down YTD, it’s worth noting how the stock has managed to outperform in what has been a difficult year for semis. POWI was actually up for the year at one point, which is more than what can be said of other semis, most of whom have done much worse in 2022.

POWI has now broken through the downtrend that was in place for months. Not only has the stock broken through resistance, but it has passed the backtest. The stock spent the last few days probing what used to be resistance. The fact that the stock stayed above what used to be resistance, despite several attempts to go below it, suggests that what used to be resistance is now support.

While it’s not impossible for the stock to go lower, the odds favor the stock going higher with solid support behind it and other bullish signals like having overtaken the 50-day moving average. The stock should be able to rally in the coming days, possibly to the $85 region before it is likely to encounter resistance.

Some may want to place short-term bets on POWI, especially with the way the charts are currently laid out, but I am neutral on POWI. Multiples for POWI are on the high side, especially in comparison to the pace of growth. Earnings are still growing at a double-digit clip, but that is down from where it used to be and that is with the assistance of stock buybacks. POWI is highly unlikely to keep spending $135M on stock buybacks in one quarter. Once stock buybacks slow down, earnings growth will slow down as well. POWI also expects costs to go up, which is likely to further affect earnings growth in the coming quarters.

There are still questions as to how much inventory building took place. POWI acknowledges the presence of excess inventory in the communications segment, but it would not be impossible if it also took place in other segments. Other semis are increasingly reporting inventory problems and it’s possible POWI has not seen the last of the inventory issues.

Bottom line, while there is room for POWI as a short-term play, POWI is a more questionable one longer term. POWI looks to be a bit too expensive at the moment, especially with many other semis available at more attractive valuations, including some with faster growth than POWI. As long as this remains the case, staying on hold is the way to go.

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