Monday, October 12, 2020

A Small Cap Equity holding: Vicor Corporation (VICR, $83.13): “Vicor’s Energizing Performance Recharging for Future Gains” by Solomon Dworsky, AIM Student at Marquette University

Vicor Corporation (VICR, $83.13): “Vicor’s Energizing Performance Recharging for Future Gains”

By: Solomon Dworsky, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


• Vicor Corporation (NASDAQ:VICR) designs and manufacturers power control components for Automotive, Communications, Computing, and Aerospace industries servicing customers in the United States, China, Japan and India.  

• The company experienced an 11.7% year/year increase in revenues as demand for their AI products increased during Q2. 

• Shipments declined by 16% during Q2 due to Covid-19. 

• VICR rebounded from their March low of $33.77 to the current price of $83.13 generating a return of 146% over the past 6 months. 

• Vicor Corporation began investing towards the manufacturing of 48V power modules providing to potential end markets including AI, Data Centers, and the automotive industry. 

Key points: The Covid-19 pandemic created short term setbacks for Vicor Corporation including a 16% decline in shipments. Additionally, tariffs between China and the United States add to the company’s headwinds costing the firm $9.4 million during Q2. Despite these headwinds, Vicor continues performing at an exceptional level by achieving an 11.6% year/year increase in revenues and maintaining consistent margins including a 44.9% gross margin and 3.1% net margin near the companies 5-year gross and net margin averages of 46% and 5% respectively. 

Vicor began investing towards the production of 48V power components providing their consumers increased power capacity reaching end markets including AI, Data Centers, and the automotive industry. Management anticipates the AI sector to reach industry revenues of $60 billion from 2023-2025 with a TAM of $3 billion. The automotive industry’s shift towards electric powered vehicles provides additional growth opportunities with an estimated SAM (Serviceable Available Market) increasing from $2.9 to $16.5 billion from 2020 – 2030 according to management. 

Vicor’s backlog rebounded during Q2 of 2020 increasing by 24.9% quarter/quarter with an overall book to bill ratios of 1.24. Additionally, management stated Q3 backlog is improving and upgraded their revenue and profitability forecasts for the next quarter. The company issued an additional 1,767,231 shares in June increasing their cash position by $109.7 million. The company maintains a low debt position with a Long-Term Debt to Total Capital ratio of 1.4x during 2019. 

The company expanded their operational capabilities by investing in a new facility, vertically integrating their manufacturing of their Advanced Products. Management stated the investment totaled $500 million in Research and Development expenses over a 15-year period. The new facility will manufacture 48V components where the company holds production process and component patents creating a significant economic moat and exposure to AI, Data Center, and automotive end markets. 

What has the stock done lately?

The stock fell from the 52-week high of $90.88 during September to the current valuation of $83.13. YTD 2020 sales growth decreased by -4.5% as seen with the 16% decline in shipments during Q2 despite year/year revenue growth. Vicor’s backlog increased during Q2 and is anticipated to continue expanding into Q3, according to their Q2 earnings call. The short interest of the stock has remained near 4% over the past 2 months.

Past Year Performance: Covid-19 created a turbulent environment for the stock’s valuation and company operations with a 52-week low of $30.00 and high of $90.88 with a 52-week beta of 1.28. The company issued 1,767,231 shares during June where shares continued to increase in value reaching a 52-week high of $90.88. The stock has a YTD performance of 73.7%.

Source: FactSet 

My Takeaway

Vicor experienced short-term setbacks due to Covid-19 although, investors remain optimistic as seen with the continued increase of the company’s valuation. Management’s investment towards 48V batteries positions the firm with a first mover advantage and economic moat providing the company exposure to AI, Data Center, and Automotive end markets reaching a total TAM and SAM of $3 billion and $16.5 billion over the next decade, respectively. Vicor Corporation is positioned to capture more revenues over the next decade with the potential to provide additional returns to shareholders.   

Source: FactSet