Microchip Technology (MCHP) Roof Leaking Today

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 $64.2 million.

• MCHP has traded 1.5 million shares today.

• MCHP is trading at 1.54 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.

 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 28. Currently there are 4 analysts that rate Microchip Technology a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Microchip Technology has been 2.2 million shares per day over the past 30 days. Microchip Technology has a market cap of $9.7 billion and is part of the technology sector and electronics industry. The stock has a beta of 0.92 and a short float of 9.2% with 13.17 days to cover. Shares are up 7.5% year-to-date as of the close of trading on Tuesday.

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 solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

• Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
• Despite the weak revenue results, MCHP has outperformed against the industry average of 11.0%. Since the same quarter one year prior, revenues slightly dropped by 0.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
• MICROCHIP TECHNOLOGY INC's earnings per share declined by 28.6% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, MICROCHIP TECHNOLOGY INC reported lower earnings of $1.66 versus $1.81 in the prior year. This year, the market expects an improvement in earnings ($2.61 versus $1.66).
• The gross profit margin for MICROCHIP TECHNOLOGY INC is rather high; currently it is at 62.30%. Regardless of MCHP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCHP's net profit margin of 11.98% is significantly lower than the industry average.
• The debt-to-equity ratio of 1.26 is relatively high when compared with the industry average, suggesting a need for better debt level management. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 6.14, which shows the ability to cover short-term cash needs.