Those of you who enjoyed reading my analyses pre-The Framework Investing–when I was heading up the semiconductor analysis team at Morningstar–will know how much I like the business model and management of Microchip Technology (MCHP), an Arizona firm that specializes in embedded control chips.
Microchip recently offered a lowered revenue guidance and suggested that their industry was heading into a slump. The stock fell over 12% after the announcement.
The announcement is interesting for several reasons, and the firm is now back on my radar screen…
This was the happy chart that I saw at the end of Friday’s trading
I considered selling puts on Microchip’s shares on Friday, soon after the close, but decided that in this case, inaction was the sager action.
Microchip does, in fact, tend to act as a canary in the coalmine when it comes to weak consumer sales, especially of those related to furnishing a home. This is partly due to the way it accounts for its sales and partly because its chips are used in an enormous number of household goods (e.g., thermostats, vacuum cleaners, garage door openers, etc., etc.).
I thought that if Microchip’s management was correct that it was seeing softness in the consumer spending environment, I would have other opportunities to sell puts or otherwise establish a position in the company after I have prepared a full valuation and analysis.
Readers of this blog and of The Framework Investings should not be surprised if they hear of Microchip again in the near future from me.