MCHP

Microchip is a real cyclical recovery story trading at a price that already pays for the recovery. The MD&A is explicit: fiscal 2025 was crushed by a 'large inventory correction' that took revenue from a $8.44B FY2023 peak to $4.40B and net income to roughly breakeven (-$500K). In FY2026 the business inflected — 'net sales in all our product lines and all our geographies increased,' revenue rose 7.1% to $4.71B, operating income jumped 65.4% to $490M, and net income recovered to $230M. The franchise quality is intact: 57.7% gross margin and $1.09B of R&D (+10.4%) point to a durable analog/microcontroller moat, and management says it is now in 'significant revenue growth mode' with inventory still being drawn down. That is the bull case, and it is credible.

The problem is the price. At $99.77 the stock is 11.5x sales and 453x trailing EPS of $0.22 — multiples that only make sense if you underwrite a full return to peak earnings power. Revenue is still ~44% below the FY2023 high, ROE is just 3.6%, and net margin is a thin 4.9%. Buying here means trusting that the cyclical snap-back the chart already moved on (+6% today) compounds into mid-cycle earnings. Even generously assuming a return toward prior peak profitability (~$2.2B net income, ~$4 EPS), ~25x gets you back to roughly today's price — i.e., the upside is largely discounted, not free.