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.
MCHP in downward trend: 10-day moving average moved below 50-day moving average on April 22, 2024
The 10-day moving average for MCHP crossed bearishly below the 50-day moving average on April 22, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 19 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
Technical Analysis (Indicators)
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on April 12, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on MCHP as a result. In of 91 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
The Moving Average Convergence Divergence Histogram (MACD) for MCHP turned negative on April 10, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 46 similar instances when the indicator turned negative. In of the 46 cases the stock turned lower in the days that followed. This puts the odds of success at .
MCHP moved below its 50-day moving average on April 12, 2024 date and that indicates a change from an upward trend to a downward trend.
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 .
The Aroon Indicator for MCHP entered a downward trend on April 18, 2024. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
Bullish Trend Analysis
The Stochastic Oscillator shows that the ticker has stayed in the oversold zone for 5 days. The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an upward trend is expected.
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where MCHP advanced for three days, in of 309 cases, the price rose further within the following month. The odds of a continued upward trend are .
MCHP may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
Fundamental Analysis (Ratings)
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 63, placing this stock better than average.
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 (6.373) is normal, around the industry mean (6.370). P/E Ratio (19.516) is within average values for comparable stocks, (109.575). MCHP's Projected Growth (PEG Ratio) (8.258) is very high in comparison to the industry average of (2.498). Dividend Yield (0.020) settles around the average of (0.021) among similar stocks. P/S Ratio (5.382) is also within normal values, averaging (36.504).
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 Price Growth Rating for this company is (best 1 - 100 worst), indicating steady 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 PE Growth Rating for this company is (best 1 - 100 worst), pointing to average 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.
Notable companies
Industry description
Market Cap
High and low price notable news
Volume
Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
General Information
a manufacturer of microcontrollers for high volume embedded control applications
Industry Semiconductors