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Trade-Ideas: Microchip Technology (MCHP) Is Today's "Roof Leaker" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Microchip Technology ( MCHP) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Microchip Technology as such a stock due to the following factors:

  • MCHP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $54.0 million.
  • MCHP has traded 1.3 million shares today.
  • MCHP is trading at 3.68 times the normal volume for the stock at this time of day.
  • MCHP crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in MCHP with the Ticky from Trade-Ideas. See the FREE profile for MCHP NOW at Trade-Ideas

More details on MCHP:

Microchip Technology Incorporated develops, manufactures, and sells semiconductor products for various embedded control applications. The stock currently has a dividend yield of 3%. MCHP has a PE ratio of 25.9. Currently there are 3 analysts that rate Microchip Technology a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Microchip Technology has been 1.4 million shares per day over the past 30 days. Microchip Technology has a market cap of $9.4 billion and is part of the technology sector and electronics industry. Shares are up 5.5% year-to-date as of the close of trading on Thursday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Microchip Technology as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and notable return on equity. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:

  • MCHP's revenue growth has slightly outpaced the industry average of 9.7%. Since the same quarter one year prior, revenues rose by 14.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • MICROCHIP TECHNOLOGY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MICROCHIP TECHNOLOGY INC increased its bottom line by earning $1.81 versus $0.61 in the prior year. This year, the market expects an improvement in earnings ($2.75 versus $1.81).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 86.8% when compared to the same quarter one year prior, rising from $59.69 million to $111.50 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, MICROCHIP TECHNOLOGY INC's return on equity exceeds that of both the industry average and the S&P 500.

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