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Vitalii Liubimov's Avatar
published in Blogs
Aug 12, 2019

Microchip Technology beat EPS estimates and could be poised to rally

Chip manufacturer Microchip Technology (Nasdaq: MCHP) announced earnings results for its fiscal first quarter after the closing bell on August 6. The company posted earnings of $1.41 per share and the consensus estimate was $1.38 a share. The revenue came in at $1.32 billion and that was a little below the consensus of $1.33 billion.

Over the last three years the company has been able to grow earnings at a rate of 33% per year, but these results were down by 12% compared to last year. Revenue has increased by an average of 29% per year over the last three years and the first quarter results were up by 9% over the previous year.

Microchip’s management efficiency ratings are really strong with a return on equity of 38.2% and a profit margin of 31.5%.

From a valuation standpoint, the company is trading at a trailing P/E ratio of 62.3, but the forward P/E is only 12.25. The price to book ratio is at 3.82 and that is in line with the industry average.

Looking at the technical picture for Microchip we see several potential bullish factors for the stock. The Tickeron Technical Analysis Overview shows that the 10-day moving average is above the 50-day and has been since July 3. This has historically been a strong sign of a continued rally as long as the 10-day remains above the 50-day.

Also from the overview we see that “the lower Bollinger Band was broken -- a price increase is expected as the stock heads toward the middle band, which indicates a buy or call consideration for traders. In 34 of 47 cases where MCHP's price broke its lower Bollinger Band, its price rose further in the following month. The odds of a continued Uptrend are 72%.”

Looking at the weekly chart we see that there is a trend line that connects the lows from last October and December, and the stock hit it again in May. Earlier this week the stock hit it again, but that was before the stock rallied post-earnings.

Another potential positive sign is that the 52-week moving average is right in the same area as the trend line and could provide a second layer of support.

The weekly overbought/oversold indicators aren’t anywhere near overbought territory at this time. The 10-week RSI is below the 50 level and the weekly stochastic readings are just above the midway point.

One particular area of analysis that really caught my attention on Microchip is the sentiment. The current short interest ratio is at 20.05 and that is the highest reading we have seen in the past year. There are 35.8 million shares sold short and the company averages 1.78 million shares of trading volume per day. The number of shares sold short has been higher at certain points in the past year, but this is the lowest average daily trading volume we have seen in the past 12 months.

Analysts’ ratings are what I would call average. There are a total of 23 analysts following the stock and 17 have it rated as a “buy” and six have it rated as a “hold”. The overall buy percentage is 73.9% and that is at the high end of the average range between 65 and 75%.

With the fundamentals being well above average and the stock clearly in an upward trend, I would look for Microchip to rally in the coming weeks. The short interest ratio being as high as it is could help propel the stock higher if short sellers have to start covering their positions.

Related Ticker: MCHP

MCHP's MACD Histogram crosses above signal line

The Moving Average Convergence Divergence (MACD) for MCHP turned positive on April 24, 2024. Looking at past instances where MCHP's MACD turned positive, the stock continued to rise in of 45 cases over the following month. The odds of a continued upward trend are .

Price Prediction Chart

Technical Analysis (Indicators)

Bullish Trend Analysis

The Momentum Indicator moved above the 0 level on May 14, 2024. You may want to consider a long position or call options on MCHP as a result. In of 94 past instances where the momentum indicator moved above 0, the stock continued to climb. The odds of a continued upward trend are .

MCHP moved above its 50-day moving average on April 24, 2024 date and that indicates a change from a downward trend to an upward trend.

The 10-day moving average for MCHP crossed bullishly above the 50-day moving average on April 29, 2024. This indicates that the trend has shifted higher and could be considered a buy signal. In of 19 past instances when the 10-day crossed above the 50-day, the stock continued to move higher over the following month. The odds of a continued upward trend are .

Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where MCHP advanced for three days, in of 313 cases, the price rose further within the following month. The odds of a continued upward trend are .

The Aroon Indicator entered an Uptrend today. In of 273 cases where MCHP Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .

Bearish Trend Analysis

The 10-day RSI Indicator for MCHP moved out of overbought territory on May 23, 2024. This could be a bearish sign for the stock. Traders may want to consider selling the stock or buying put options. Tickeron's A.I.dvisor looked at 35 similar instances where the indicator moved out of overbought territory. In of the 35 cases, the stock moved lower in the following days. This puts the odds of a move lower at .

The Stochastic Oscillator demonstrated that the ticker has stayed in the overbought zone for 8 days. The longer the ticker stays in the overbought zone, the sooner a price pull-back is expected.

Following a 3-day decline, the stock is projected to fall further. Considering past instances where MCHP declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .

MCHP broke above its upper Bollinger Band on May 22, 2024. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.

Fundamental Analysis (Ratings)

Fear & Greed

The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating low risk on high returns. The average Profit vs. Risk Rating rating for the industry is 62, placing this stock better than average.

The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating outstanding price growth. MCHP’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.

The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is slightly undervalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (7.968) is normal, around the industry mean (7.078). P/E Ratio (28.397) is within average values for comparable stocks, (54.567). Projected Growth (PEG Ratio) (3.986) is also within normal values, averaging (3.272). Dividend Yield (0.018) settles around the average of (0.020) among similar stocks. P/S Ratio (7.092) is also within normal values, averaging (33.749).

The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to outstanding earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.

The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.

The Tickeron Seasonality Score of (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.

Notable companies

The most notable companies in this group are NVIDIA Corp (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Company Ltd (NYSE:TSM), Broadcom (NASDAQ:AVGO), Advanced Micro Devices (NASDAQ:AMD), QUALCOMM (NASDAQ:QCOM), Texas Instruments (NASDAQ:TXN), Applied Materials (NASDAQ:AMAT), Micron Technology (NASDAQ:MU), Intel Corp (NASDAQ:INTC), Lam Research Corp (NASDAQ:LRCX).

Industry description

The semiconductor industry manufacturers all chip-related products, including research and development. These chips are used in innumerable electronic devices, including computers, cell phones, smartphones, and GPSs. Intel Corporation, NVIDIA Corp., and Broadcomm are some of the prominent players in this industry. Semiconductor companies usually tend to do well during periods of healthy economic growth, thereby inducing further research and development in the industry – which in turn augurs well for productivity and growth in the economy. In the near future, demand for semiconductor products (and possibly innovation within the segment) should only expand further, with the proliferation of 5G, autonomous vehicles, IoT, and various AI-driven electronics set to herald a new, advanced chapter in the technology-driven world as we know it. With burgeoning prospects comes great competition. In 2015, SIA estimated that U.S. semiconductor industry ranks as the second most competitive U.S. industry out of 2882 U.S. industries designated manufacturers by the U.S. Census Bureau.

Market Cap

The average market capitalization across the Semiconductors Industry is 45.31B. The market cap for tickers in the group ranges from 13.43K to 2.8T. NVDA holds the highest valuation in this group at 2.8T. The lowest valued company is CYBL at 13.43K.

High and low price notable news

The average weekly price growth across all stocks in the Semiconductors Industry was 1%. For the same Industry, the average monthly price growth was 5%, and the average quarterly price growth was 26%. SQNS experienced the highest price growth at 31%, while WISA experienced the biggest fall at -28%.

Volume

The average weekly volume growth across all stocks in the Semiconductors Industry was 4%. For the same stocks of the Industry, the average monthly volume growth was -26% and the average quarterly volume growth was 126%

Fundamental Analysis Ratings

The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows

Valuation Rating: 58
P/E Growth Rating: 47
Price Growth Rating: 50
SMR Rating: 69
Profit Risk Rating: 62
Seasonality Score: 18 (-100 ... +100)
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MCHPDaily Signal changed days agoGain/Loss if shorted
 
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General Information

a manufacturer of microcontrollers for high volume embedded control applications

Industry Semiconductors

Profile
Fundamentals
Details
Industry
Semiconductors
Address
2355 West Chandler Boulevard
Phone
+1 480 792-7200
Employees
22600
Web
https://www.microchip.com
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