Sometimes being different isn’t best for short-term performance. Microchip (MCHP) is a little out of step with its peer group of analog and MCU companies with respect to its product and end-market exposures, and although the shares haven’t done poorly over the last three months, they have lagged many of the company’s peers in the analog/MCU space, as the company isn’t as well-leveraged to recoveries in markets like auto.
While Microchip’s shallower decline/shallower recovery may be playing into near-term performance, I believe it is the company’s ability to execute on margin leverage opportunities that will have a bigger impact on performance over the next couple of years. Microchip’s relative underperformance in recent months does leave it looking more reasonably priced now, but less leverage to autos and industrial end-markets could remain a headwind into 2021 as the market is already clearly pricing in a meaningful rebound for the space.
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Microchip Offers Seemingly Less Recovery Upside, But Still Significant Potential Margin Leverage
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