Microchip Technology (MCHP) Soars to a 52-Week High, Time to Cash Out?

Have you been paying attention to shares of Microchip Technology MCHP? Shares have been on the move with the stock up 12.7% over the past month. MCHP hit a new 52-week high of $102.80 in the previous session. Microchip Technology has gained 16.2% since the start of the year compared to the 9.1% move for the Computer and Technology sector and the 11% year-to-date return for its peer group.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, having beaten the Zacks Consensus Estimate in each of the last four quarters. In its last earnings report on May 8, 2018, Microchip Technology reported EPS of $1.4 versus the Zacks Consensus Estimate of $1.35 while it beat the consensus revenue estimate by 1.81%.

For the current fiscal year, Microchip Technology is expected to post earnings of $6.47 per share on $5.93 billion in revenues. Meanwhile, for the next fiscal year, the company is expected to earn $7.65 per share on $6.61 billion in revenues. This represents a year-over-year change of 18.25% and 11.34%, respectively.

Valuation Metrics

While MCHP has moved to its 52-week high in the recent past, investors need to be asking, what is next for the company? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Microchip Technology has a Value Score of C. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 15.8X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 24.3X versus its peer group's average of 15.3X. Additionally, the stock has a PEG ratio of 1.13. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Microchip Technology Incorporated Price and Consensus

Microchip Technology Incorporated Price and Consensus | Microchip Technology Incorporated Quote

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Microchip Technology currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 and Style Scores of A or B, it looks as if Microchip Technology passes the test. Thus, it seems as though MCHP shares could have potential in the weeks and months to come.

How Does Microchip Technology Stack Up to the Competition?

Shares of Microchip Technology have been moving higher, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also looking good, including Tokyo Electron TOELY, Micron Technology MU, and Mellanox Technologies MLNX, all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Microchip Technology. Still, the fundamentals for MCHP are promising, and it still has potential despite being at a 52-week high.

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Microchip Technology Incorporated (MCHP) : Free Stock Analysis Report
 
Mellanox Technologies, Ltd. (MLNX) : Free Stock Analysis Report
 
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