Microchip Technology Inc (MCHP)

Conclusion

Microchip Technology designs and sells microcontrollers, analog and mixed-signal chips, FPGAs and memory products, and licenses its SuperFlash memory technology to foundries. At a price of 61.50 USD on 9 November 2026, the company has a market capitalisation of 33.5 billion USD and an enterprise value of 38.6 billion USD.

The verdict is overvalued. The fair value band runs from 33.70 to 50.55 USD with a midpoint of 42.13 USD, and at the current price the margin of safety is -31.5%. Against their own ten-year medians, the P/E of 41.3 sits below 57.1 and the price-to-book of 5.0 below 6.4, but EV/EBITDA of 18.9 is above 18.3 and price-to-free-cash-flow of 23.0 is above 19.4. The discounted cash flow gives 24.90 USD per share at a discount rate of 14.2%. The reverse DCF implies growth of 20.5% a year, while revenue actually shrank at a compound rate of 2.8% over five years.

What holds the case up is free cash flow conversion of 179.6% over the last twelve months, a current ratio of 2.24 and an Altman Z-score of 3.8. What would break it is return on invested capital of 9.9% against a WACC of 12.7%, revenue falling at a compound rate of 17.7% over three years, and net debt at 2.49 times EBITDA.

Financial health

Financial strength is green, held up by an Altman Z-score of 3.8 in the safe zone and a current ratio of 2.24, and held back only by net debt at 2.49 times EBITDA and interest coverage of 6.8 times, both neutral. The quick ratio is 1.16 and debt to equity is 0.84. The Altman model was built for manufacturers, and Microchip is one, so its reading applies directly. Insolvency risk: low, about 0.4% by the estimate of the Ohlson model over one to two years. Over the last five years, debt has changed by a compound rate of -6.6% against revenue, which means debt has been shrinking relative to the business.

Earnings quality

Earnings quality is green. Free cash flow conversion is 179.6% over the last twelve months and 175.0% over five years, and the accrual ratio is -5.1%, which means cash earnings are running ahead of reported profit. Stock-based compensation is 5.1% of revenue, leaving free cash flow after it at 1.17 billion USD. The share count has grown by a compound 0.25% a year over five years, so there have been no meaningful buybacks. The Piotroski score is 6 out of 9. The Beneish M-score is not available. Over the last eight quarters the company beat estimates six times and missed once, with an average surprise of 1.4%. Estimates for the current year were revised down 0.7% over 90 days, with no upward or downward moves in the last 30 days beyond two raises.

Profitability

Profitability is yellow. Margins are above their ten-year medians: gross margin is 62.7% against 61.1%, operating margin 20.8% against 15.9%, and net margin 14.5% against 6.5%. The weak point is returns on capital. Return on invested capital is 9.9% against a WACC of 12.7%, a return-on-capital minus WACC figure of -2.8% that destroys value. The five-year median return on invested capital is 10.9%. Return on equity is 12.2%, but the annual DuPont split shows an equity multiplier of 2.23 and an asset turnover of 0.33, so leverage contributes a large part of that return. The company's cost of equity is 14.2% and its cost of debt 4.9%.

Growth

Growth is red. Revenue has a compound growth rate of -17.7% over three years, -2.8% over five years and 8.1% over ten years. Earnings per share fell at -54.9% over three years, -10.6% over five years and -6.8% over ten years. Free cash flow per share fell at -34.4% over three years and -14.0% over five years, and was roughly flat at 0.7% over ten. Revenue rose in seven of the ten comparable years. Analysts expect next-year earnings per share to grow 24.1%, which is a forecast and not a delivered result.

Valuation

Valuation is red. Today's P/E is 41.3 against a ten-year median of 57.1, a premium of -27.7%, and price-to-book is 5.0 against 6.4, a premium of -20.9%. EV/EBITDA of 18.9 is 3.1% above its median of 18.3, price-to-sales of 6.0 is 4.0% above 5.7, and price-to-free-cash-flow of 23.0 is 18.7% above 19.4. The discounted cash flow gives 24.90 USD per share at a discount rate of 14.2%, and the fair value from historical multiples is 59.35 USD. The fair value band of 33.70 to 50.55 USD is built on fixed assumptions, including a 5% equity risk premium and capped growth, and is not a price target. The reverse DCF implies growth of 20.5% a year against revenue growth of -2.8% and free cash flow per share growth of -14.0% over five years. The dividend yield is 3.3% with a payout of 75.5% of free cash flow.

Risks

Shrinking revenue and a return on invested capital below the cost of capital are the central risks. Continued revenue declines would make the implied growth of 20.5% harder to reach, and returns below WACC mean new investment is not yet earning its cost. Net debt at 2.49 times EBITDA leaves less room if earnings fall further, and the next-year earnings forecast has been revised down slightly over 90 days. Several values are not available: the Beneish M-score, a debt maturity schedule and revenue by segment. This analysis uses only the figures listed here, so it cannot judge the timing of debt repayments or which segments drive the decline.