Microchip Technology Incorporated (NASDAQ:MCHP) shareholders have seen the share price descend 13% over the month. But at least the stock is up over the last five years. In that time, it is up 24%, which isn’t bad, but is below the market return of 48%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 21% drop, in the last year.
Since the long term performance has been good but there’s been a recent pullback of 10%, let’s check if the fundamentals match the share price.
View our latest analysis for Microchip Technology
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Microchip Technology managed to grow its earnings per share at 22% a year. This EPS growth is higher than the 4% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Microchip Technology the TSR over the last 5 years was 33%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
While it’s certainly disappointing to see that Microchip Technology shares lost 20% throughout the year, that wasn’t as bad as the market loss of 25%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 6% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We’ve spotted 2 warning signs for Microchip Technology you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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