Investors interested in Semiconductor – Analog and Mixed stocks are likely familiar with Microchip Technology (MCHP) and Monolithic Power (MPWR). But which of these two stocks offers value investors a better bang for their buck right now? We’ll need to take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Microchip Technology has a Zacks Rank of #2 (Buy), while Monolithic Power has a Zacks Rank of #4 (Sell) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MCHP has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company’s fair value.
MCHP currently has a forward P/E ratio of 11.42, while MPWR has a forward P/E of 27.51. We also note that MCHP has a PEG ratio of 0.70. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company’s expected earnings growth rate. MPWR currently has a PEG ratio of 1.10.
Another notable valuation metric for MCHP is its P/B ratio of 6.12. Investors use the P/B ratio to look at a stock’s market value versus its book value, which is defined as total assets minus total liabilities. By comparison, MPWR has a P/B of 10.40.
These are just a few of the metrics contributing to MCHP’s Value grade of B and MPWR’s Value grade of D.
MCHP has seen stronger estimate revision activity and sports more attractive valuation metrics than MPWR, so it seems like value investors will conclude that MCHP is the superior option right now.
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