Investors looking for stocks in the Semiconductor - Analog and Mixed sector might want to consider either Microchip Technology (MCHP) or Monolithic Power (MPWR). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Microchip Technology has a Zacks Rank of #2 (Buy), while Monolithic Power has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MCHP has an improving earnings outlook. But this is just one factor that value investors are interested in.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
MCHP currently has a forward P/E ratio of 13.07, while MPWR has a forward P/E of 36.35. We also note that MCHP has a PEG ratio of 0.77. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. MPWR currently has a PEG ratio of 1.45.
Another notable valuation metric for MCHP is its P/B ratio of 6.99. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, MPWR has a P/B of 13.57.
Based on these metrics and many more, MCHP holds a Value grade of B, while MPWR has a Value grade of D.
MCHP stands above MPWR thanks to its solid earnings outlook, and based on these valuation figures, we also feel that MCHP is the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report