Microchip Stock's Rally Isn't Built To Last
Microchip Technology stock (NASDAQ:MCHP), a firm that produces microcontrollers, mixed-signal, analog, and Flash-IP integrated circuits, surged nearly 12% in Friday's trading and is up 17% over the last five trading days. The increase follows the company's better-than-expected Q4 FY'25 earnings report (March year) and an optimistic revenue forecast for Q1 FY'26. Recent quarters have shown a slowdown in demand for Microchip's low-end semiconductors from sectors including automotive and industrial electronics, resulting in increased inventory and lower order volumes, which has driven the stock down approximately 50% from the peaks observed in mid-2024. So, has MCHP stock turned a corner? Is it an advisable investment at the current prices?
We believe that MCHP stock appears unappealing, making it a very poor investment at its current price of about $60. There are several concerns regarding MCHP stock which make it unattractive, particularly given that its current valuation seems excessively high.
We reach our conclusion by assessing the current valuation of MCHP stock against its operational performance in recent years along with its current and historical financial state. Our assessment of Microchip Technology across pivotal factors of Growth, Profitability, Financial Stability, and Downturn Resilience indicates that the company has a very weak operating performance and financial health, as detailed below. However, if you are looking for potential gains with lower volatility than individual stocks, the Trefis High Quality portfolio offers an alternative, having outperformed the S&P 500 and produced returns exceeding 91% since its establishment.
When considering what you pay per dollar of sales or profit, MCHP stock appears overpriced compared to the overall market.
• Microchip Technology has a price-to-sales (P/S) ratio of 5.2 compared to a figure of 2.8 for the S&P 500
• Furthermore, the company's price-to-free cash flow (P/FCF) ratio is 22.0 in contrast to 17.6 for the S&P 500
• Additionally, it has a price-to-earnings (P/E) ratio of 79.9 against the benchmark's 24.5
Microchip Technology's Revenues have significantly decreased over recent years.
• Microchip Technology has experienced its top line decline at an average rate of 4.4% over the past three years (compared to an increase of 6.2% for the S&P 500)
• Its revenues have decreased by 44.3% from $8.5 billion to $4.8 billion in the last 12 months (versus a growth of 5.3% for the S&P 500)
• Furthermore, its quarterly revenues dropped 41.9% to $1.0 billion in the most recent quarter from $1.8 billion a year prior (compared to a 4.9% improvement for the S&P 500)
Microchip Technology's profit margins are inferior to most companies in the Trefis coverage universe.
• Microchip Technology's Operating Income for the last four quarters was $641 million, representing a subpar Operating Margin of 13.5% (vs. 13.1% for the S&P 500)
• Microchip Technology's Operating Cash Flow (OCF) during this time was $1.1 billion, illustrating a modest OCF Margin of 23.6% (compared to 15.7% for the S&P 500)
• For the last four-quarter stretch, Microchip Technology's Net Income was $309 million — indicating a low Net Income Margin of 6.5% (compared to 11.3% for the S&P 500)
Microchip Technology's balance sheet appears quite fragile.
• Microchip Technology's Debt stood at $6.8 billion at the end of the latest quarter, while its market capitalization is $30 billion (as of 5/9/2025). This results in a moderate Debt-to-Equity Ratio of 27.5%(compared to 21.5% for the S&P 500). [Note: A lower Debt-to-Equity Ratio is preferable]
• Cash (including cash equivalents) constitutes $586 million of the $16 billion in Total Assets for Microchip Technology. This results in a poor Cash-to-Assets Ratio of 3.8% (compared to 15.0% for the S&P 500)
MCHP stock has underperformed the benchmark S&P 500 index during several recent downturns. Concerned about the effects of a market crash on MCHP stock? Our dashboard How Low Can Microchip Technology Stock Go In A Market Crash? provides a detailed analysis of how the stock fared during and after previous market crashes.
• MCHP stock declined 37.2% from a peak of $89.35 on December 27, 2021, to $56.14 on July 5, 2022, compared to a peak-to-trough drop of 25.4% for the S&P 500
• The stock fully rebounded to its pre-Crisis peak by June 30, 2023
• Since then, the stock has risen to a maximum of $99.49 on May 22, 2024, and currently trades around $60
• MCHP stock plummeted 49.9% from a high of $55.60 on January 13, 2020, to $27.89 on March 16, 2020, compared to a peak-to-trough fall of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by September 1, 2020
• MCHP stock dropped 60.6% from a high of $21.03 on June 15, 2007, to $8.29 on January 20, 2009, compared to a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by October 31, 2013
In conclusion, Microchip Technology's performance across the factors mentioned above is as follows:
• Growth: Extremely Weak
• Profitability: Weak
• Financial Stability: Weak
• Downturn Resilience: Weak
• Overall: Very Weak
Moreover, considering its excessively high valuation, we find that the stock is highly unattractive, reinforcing our assertion that MCHP is a poor investment option.
While it would be wise to steer clear of MCHP stock for the time being, you might consider exploring the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver robust returns for investors. Why is that? The periodically rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks has effectively capitalized on favorable market conditions while mitigating losses during downturns, as elaborated in RV Portfolio performance metrics.
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