Is It Too Late To Consider Microchip Technology (MCHP) After Its Strong 1 Year Rally?

• If you are wondering whether Microchip Technology’s current share price reflects its true worth, you are not alone. This article is built to help you think through that question clearly.
• The stock last closed at US$73.94, with returns of 16.0% over 7 days, 9.8% over 30 days, 13.7% year to date and 35.3% over 1 year. The 3 year and 5 year returns sit at 5.5% and 8.5% respectively.
• Recent price moves have come alongside ongoing attention on the semiconductor sector, where investors continue to track how manufacturers position themselves for long term chip demand across industries such as autos and industrials. Sector wide themes, including supply chain investment and capital spending by large chip buyers, provide context for how traders are thinking about Microchip Technology’s prospects and risks.
• Right now, Microchip Technology scores 0/6 on our valuation checks. You can see the full breakdown in our valuation scorecard, which we will unpack using several standard valuation approaches before finishing with a framework that can help you think about value in an even more practical way.

Microchip Technology scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Microchip Technology Discounted Cash Flow (DCF) Analysis

A DCF model estimates what a company could be worth by projecting its future cash flows and then discounting those back to today’s dollars. It is essentially asking what tomorrow’s cash is worth to you right now.

For Microchip Technology, the model uses a 2 stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $678.6 million. Analyst based projections and subsequent extrapolations by Simply Wall St imply free cash flow reaching about $2.6 billion in 2030, with a detailed path of annual projections between 2026 and 2035.

When all those projected cash flows are discounted back using the DCF method, the estimated intrinsic value comes out at about $57.24 per share. Compared with the recent share price of $73.94, this framework suggests the stock is about 29.2% above the model’s estimate of fair value. On this measure the shares appear expensive rather than cheap.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Microchip Technology may be overvalued by 29.2%. Discover 885 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Microchip Technology.

Approach 2: Microchip Technology Price vs Sales

For many established semiconductor companies, P/S can be a useful way to think about value, because it compares what the market is paying for each dollar of revenue rather than focusing on accounting earnings, which can be affected by one off items or heavy investment.

In simple terms, higher growth expectations and lower perceived risk usually justify a higher P/S multiple, while slower expected growth or higher risk tend to line up with a lower, more conservative multiple. The question is what looks “normal” for a business like this.

Microchip Technology currently trades on a P/S ratio of 9.49x. That sits above the Semiconductor industry average of 5.71x and also above the average of its peer group at 7.40x. Simply Wall St’s Fair Ratio framework estimates a P/S of 8.81x for Microchip Technology, based on factors such as its growth profile, profit margins, industry, market cap and company specific risks.

This Fair Ratio approach aims to be more tailored than a simple peer or industry comparison because it adjusts the expected multiple for business quality and risk, rather than assuming all chip companies should trade on the same P/S.

Comparing the current 9.49x P/S to the 8.81x Fair Ratio suggests the shares are pricing in more optimism than this model supports.

Result: OVERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1449 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Microchip Technology Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, where you tell the story behind your numbers by linking your view on Microchip Technology’s future revenue, earnings and margins to a financial forecast, a fair value estimate and your own decision framework. All of this happens within Simply Wall St’s Community page, which updates your Narrative automatically when new news or earnings arrive. Your Narrative can look very different from other investors’ views. For example, you might think a fair value close to US$90 makes sense because you expect stronger demand recovery and higher margins, while someone more cautious might anchor closer to US$60 because they focus on risks like high inventory, debt and competition.

Do you think there's more to the story for Microchip Technology? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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