Shares of semiconductor company Microchip (MCHP) fell 6.3% on May 13 to close trading at $83.61. Microchip stock has fallen more than 16% since the start of May 2019. Its stock is currently trading 38% above its 52-week low of $60.7 and 20% below its 52-week high of $104.2. The stock has still gained 17% this year despite losing 6.3% on May 13.
Microchip stock is expected to fall—at least in the short term—as it generates more than 30% of its sales from China (FXI), which is its biggest sales region. In fiscal 2018, Microchip’s sales in China rose 9.5%. The trade war between the United States and China as well as industry-level weakness sent Microchip stock down 23% in fiscal 2018.
Is Microchip stock attractive at its current valuation?
Microchip has a forward PE multiple of 11.5x. Its EPS are expected to fall 5% this year. The company’s PE multiple for next year is 12x, while its EPS are expected to rise 16.6%.
Analysts expect Microchip’s EPS to rise at a compound annual growth rate of 10.4% over the next five years. Though its earnings are expected to fall in fiscal 2020, robust earnings growth in fiscal 2021 should keep investors interested.
This stock could be a good pick if it dips further due to the trade war. Microchip’s sales are expected to rise from $5.35 billion in fiscal 2019 to $6.10 billion in fiscal 2022.
Of the 17 analysts tracking Microchip, 12 have given it “buys,” five have given it “holds,” and none have given it “sells.” The average 12-month target price for Microchip is $104.81, indicating that its stock is trading at a discount of 25% to the consensus estimate.