Mellanox (MLNX) Looks Promising: Should You Buy the Stock?

Zacks Equity Research
Zacks

A successful investor understands the importance of adding well-performing stocks in the portfolio at the right time. Notably, indicators of a stock’s bullish run include a rise in share price and strong fundamentals.

Mellanox Technologies Inc. MLNX is one such technology stock that has been on healthy growth trajectory, of late. The company’s shares have returned 57.5% year to date, substantially outperforming the 34.3% rally of the industry.

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Let’s delve deeper and take a look at some of the factors aiding the performance.

What’s Working in Favor of Mellanox?

In the last reported quarter, Mellanox has delivered a positive earnings surprise 10.9%.Further, it has a long-term expected EPS growth rate of 16%.

In the last 30 days, the Zacks Consensus Estimate for Mellanox’s next quarter witnessed upward revisions. The Zacks Consensus Estimate for next quarter is currently pegged at 47 cents per share compared with 46 cents per share projected 30 days ago. Notably, none of the estimates moved downward.

The company recently announced collaboration with NEC Corporation to provide support to NEC’s newly announced SX-Aurora TSUBASA systems with its InfiniBand adapters. InfiniBand is highly scalable and its off-loading capabilities that reduce load on CPUs are attracting artificial intelligence (AI), machine learning and deep learning providers. These design wins are likely to aid top-line growth.

Apart from strong demand for Mellanox’s InfiniBand solutions, collaborations with the likes of Atos, VMware and Hewlett Packard Enterprise have helped it expand footprint in the cloud and datacenter market.

Mellanox is winning contracts from the likes of NetApp. Additionally, the company’s collaboration with Microsemi Corporation is also anticipated to reinforce its footprint in the high performance computing market going forward.

Market research firm IDC forecasts that by 2025, the global datasphere will grow to 163 zettabytes (that is a trillion gigabytes), which is ten times the 16.1 zettabytes (ZB) of data generated in 2016. This exponential growth bodes well for Mellanox’s interconnect solutions owing to growing demand for higher network speeds for fast processing of data.

Bottom Line

Looking at these positives, we believe that Mellanox is one technology stock that deserves a place in investors’ portfolio. Consequently, investing in this stock can yield returns in the short term.

Zacks Rank & Other Key Picks

Mellanox sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation NVDA, DXC Technology Company DXC and Analog Devices, Inc. ADI are some other top-ranked stocks in the same sector. All the three companies flaunt the same Zacks Rank as Mellanox.

NVIDIA, DXC and Analog Devices have a long-term earnings growth rate of 10.3%, 10.5% and 10.4%, respectively.

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