MCHP - Microchip (MCHP) stock: rating downgrade as a double top forms
2024-02-20 03:05:00 ET
Microchip Technology (NASDAQ: MCHP) stock price has plunged hard this year, underperforming other semiconductor companies. The shares retreated to $81.6 on Friday, much lower than the December high of $94.23. This means that the stock has dropped by more than 13%, meaning it has moved into a correction.
Growth concerns remain
Microchip Technology is a company in the semiconductor industry that manufactures products used in most industries like computing, data centers, and Internet of Things (IoT). Some of its most popular products are mixed-signal microcontrollers, amplifiers, data converters, and high-speed networking solutions.
Unlike other companies in the semiconductor industry, Microchip Technology is not doing well partly because of its high inventories. Its total revenue in Q3’24 dropped by 18.6% YoY while its inventory continued rising.
The company had about $1.3 billion in inventory in December. It had about 185 days of inventory at the end of the quarter. This is a sign that the company is seeing weak demand for its products. Indeed, the management believes that this inventory will rise to between 225 and 230 mid-this quarter. The CFO said this about its inventory :
“We continue to receive requests to push out or cancel backlog as customers sought to rebalance their inventory in light of the weaker business conditions and the increased uncertainty that we’re experiencing.”
Therefore, fundamentally, there are signs that the company will not get out of this hole any time soon. In the past, we have seen many companies, especially retailers struggle or even file for bankruptcy because of these inventory issues.
This explains why the company published a weak forward guidance. The management expects that its revenue for this quarter will be between $1.22 billion and $1.45 billion. It sees its GAAP EPS coming in at between $0.46 and $0.68.
Microchip stock price forecast
Turning to the daily chart, we see that the MCHP stock price has dived hard in the past few weeks. A closer look shows that the 25-day and 50-day Exponential Moving Averages (EMA) have made a bearish crossover. Most importantly, the shares have formed a double-top pattern, which is a highly bearish sign.
The stock is now sitting at the neckline of this pattern at around $81.71. It has also broken and retested this neckline. Therefore, the outlook for the stock is extremely bearish, with the next point to watch being at $68.40, its lowest swing in November. This price is about 16% below the current level.
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