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Microchip Stock Fell More than 6.3% on May 13

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Microchip’s returns

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.

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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.

Analysts’ estimates

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.

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