Although MLNX is the leading manufacturer of Infiniband interconnect products in the tech sector and is run by a strong management team, the stock has simply gone up too far too fast. It has quadrupled over the past twelve months and more than doubled in the past three months. MLNX now sports a $4.9 billion market capitalization, and trades at 12x revenue, 65x EV/EBITDA and more than 80x Price-to-Earnings.
The current valuation multiples are silly. Mellanox is a fabless semiconductor manufacturer, and while it may have the technological edge in its market niche currently, it operates in a fast-changing industry with competitors like Intel. We doubt that the company’s profit growth will continue long enough to justify its current valuation. Its competitive landscape will look markedly different in five years, and we believe that Mellanox’s 80% market share in Infiniband interconnect products are unlikely to continue. Intel acquired Mellanox’s main competitor in Infiniband products last year, and has shown increasing signs of producing competitive products in the Infiniband niche in future years. Given MLNX’s recent growth and the increasing popularity of Infiniband, we think that MLNX will ultimately be subjected to the competitive pressures that ultimately catch up with virtually all semiconductor companies.
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More