Microchip Technology trending higher, but fundamentals are mixed
The semiconductor industry has been at the center of the trade discussions between China and the U.S. Intellectual property rights are a major sticking point between the two countries. On November 25, China hinted at stricter rules to protect intellectual property rights and chip companies jumped as a result.
One particular chip company I am watching is Microchip Technology (Nasdaq: MCHP). The stock has been trending higher, but there are some concerns when it comes to the company's fundamentals. Looking at the chart first, we see on the daily chart how the stock has moved significantly higher since late May. The stock did pull back in the first part of November, but it looks like it has reversed course at this point.
We see how the daily stochastic readings dropped in to oversold territory in the last few weeks, but the indicators have turned higher and made a bullish crossover on November 22. The indicators were in oversold territory and made bullish crossovers in May, early August, and late August, and each time the stock rallied. This particular setup looks more like the round pattern from May than the V-shaped patterns in August.
While the char looks good, there are some concerns regarding the fundamental performance of the company. Microchip has seen its earnings grow by 25% per year over the last three years while sales have grown by 25% as well. One problem comes from the third quarter earnings report which showed that earnings fell by 9% and sales dropped 7%. Analysts expect earnings to fall by 15% on the year with sales being down an estimated 4.9% for the year.
The company's management efficiency ratings are really strong with the return on equity at 36.8% and the profit margin is at 30.4%.
Looking at the Fundamental Analysis Overview from Tickeron, Microchip only has one area where it is ever so slightly above average. The Profit vs. Risk Rating is at 41 which indicates well-balanced risk and returns. The average Profit vs. Risk Rating for the industry is 67, placing this stock slightly better than average.
The Tickeron Price Growth Rating for Microchip is 50, and that is the midpoint for the ratings. A rating of 1 indicates the highest price growth while a rating of 100 indicates the lowest price growth. The rating measures how the stock price has grown over the past year compared to S&P 500 components.
The SMR rating from Tickeron is 56, indicating strong sales and a profitable business model, but it is slightly below average. 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 Tickeron Valuation Rating of 74 indicates that the company is slightly overvalued in the industry. A rating of 1 points to the most undervalued stocks, while a rating of 100 points to the most overvalued stocks. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization.
The PE Growth Rating for Microchip is 100, pointing to worse than 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. A rating of 1 indicates highest PE growth while a rating of 100 indicates lowest PE growth.
The sentiment indicators for Microchip are mixed with extreme bullish sentiment from analysts and extreme bearish sentiment from short sellers. There are 22 analysts covering the stock with 18 "buy" ratings and four "hold" ratings. This puts the buy percentage at 81.8% and that is well above average.
The short interest ratio is a whopping 14.0 and that is one of the biggest short interest ratios I have seen lately. The average short interest ratio is around 3.0. If the stock rallies, this high short interest could add fuel to the fire as the short sellers can add buying pressure as they scramble to cover their positions.
MCHP sees its Stochastic Oscillator ascends from oversold territory
On December 26, 2024, the Stochastic Oscillator for MCHP moved out of oversold territory and this could be a bullish sign for the stock. Traders may want to buy the stock or buy call options. Tickeron's A.I.dvisor looked at 60 instances where the indicator left the oversold zone. In of the 60 cases the stock moved higher in the following days. This puts the odds of a move higher at over .
Technical Analysis (Indicators)
Bullish Trend Analysis
The RSI Oscillator points to a transition from a downward trend to an upward trend -- in cases where MCHP's RSI Indicator exited the oversold zone, of 23 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
The Moving Average Convergence Divergence (MACD) for MCHP just turned positive on December 26, 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 .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where MCHP advanced for three days, in of 300 cases, the price rose further within the following month. The odds of a continued upward trend are .
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on January 08, 2025. You may want to consider selling the stock, shorting the stock, or exploring put options on MCHP as a result. In of 95 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
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 January 02, 2025. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
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 Valuation Rating of (best 1 - 100 worst) indicates that the company is seriously 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 (4.721) is normal, around the industry mean (12.192). P/E Ratio (38.326) is within average values for comparable stocks, (57.207). Projected Growth (PEG Ratio) (6.820) is also within normal values, averaging (3.156). Dividend Yield (0.033) settles around the average of (0.021) among similar stocks. P/S Ratio (5.461) is also within normal values, averaging (50.875).
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating 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 fairly steady price growth. MCHP’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating that the returns do not compensate for the risks. MCHP’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 68, placing this stock worse than average.
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General Information
a manufacturer of microcontrollers for high volume embedded control applications
Industry Semiconductors