Microchip stock price remains in a strong bear market after falling by almost 30% from its highest level this year. MCHP share was trading at $70.3, up by about 13% above the lowest point this year.
Microchip stock price is at risk
The weekly chart shows that the MCHP share price has been in a strong bearish trend in the past few months. This happened as the company went through a rough patch as sales growth faded.
The stock’s bearish breakout happened after it formed a rising and broadening wedge chart pattern. In most periods, this is one of the most bearish signs in the market.
MCHP has moved below the lower sides of the wedge pattern. It has also dropped below the 50-day and 200-day Exponential Moving Averages (EMA), meaning that bears are in control for now.
The Relative Strength Index (RSI) and the MACD indicators have continued falling, a sign that bears are in control for now. Therefore, there are odds that the Microchip share price will continue falling as sellers target the key support at $52.2, its lowest level since July 2022 and about 26% below the current level.
Read more: Microchip stock rises ahead of earnings: inventories will be key
The stop-loss of this trade is at $80, which also coincides with the 50-week moving average. If this happens, the MCHP stock will jump to the next key resistance point at $100.
MCHP chart by TradingView
Microchip’s business is facing major headwinds
The recent Microchip share price retreat happened as the company continued to face major headwinds as its business slows.
Its results released on Monday showed that revenue in the second quarter dropped by 6.2% to $1.16 billion. It dropped by a whopping 48.4% from the same period last year, a sign that demand has evaporated.
MicroChip expects that its business will continue weakening in the next few quarters. It expects that its revenue will be about $1.02 billion, lower than the average estimate of $1.06 billion. If these numbers are accurate, they will be about 40% lower than what it made in the same period a year ago.
MicroChip’s gross margins are expected to come in at 57%, lower than the previous 59.5%. Also, the operating expenses are expected to move up to 33.2%.
Analysts believe that its profitability will be much lower. The average estimate of its earnings per share is $0.3, lower than the previous quarter’s $1.08. For the year, the EPS will drop to $1.63 from the previous $4.92.
The management is taking action to deal with the ongoing slump. In one of the most important measures, the company announced that it was closing its Arizona plant, a move that will affect about 500 workers.
The company cited the weak demand for its products and the fact that it had substantial inventories. It now expects to start reducing these orders in the next few months.
Still, analysts are relatively bullish on the MCHP stock price. Some of the most bullish analysts are from companies like Citigroup, Jefferies, TD Cowen, Evercore ISI, and Susquehanna. Some of these companies could start to downgrade the stock after the new developments.
The average estimate for the Microchip Technologies share price is $84.98, up by about 20% above the current level.
Still, MicroChip has done fairly well in the past few years. It has generated over $12.6 billion adjusted free cash flow since 2019. It has paid over $6.4 billion in debt, reducing its debt in 21 of the last 25 quarters. The company has also paid dividends worth $3.7 billion and repurchased shares worth $2.4 billion.
Still, there is a risk that Microchip’s dividend could be at risk after it grew it for 22 years and has a dividend yield of 2.67%.
Read more: Microchip (MCHP) stock: rating downgrade as a double top forms
The post Microchip stock price is on the verge of a bearish breakout appeared first on Invezz
