Comparing Valuation And Performance: Microchip Technology Incorporated (MCHP), Enerplus Corporation (ERF)

The shares of Microchip Technology Incorporated have increased by more than 11.61% this year alone. The shares recently went up by 0.33% or $0.32 and now trades at $98.08. The shares of Enerplus Corporation (NYSE:ERF), has jumped by 30.34% year to date as of 08/09/2018. The shares currently trade at $12.76 and have been able to report a change of -5.55% over the past one week.

The stock of Microchip Technology Incorporated and Enerplus Corporation were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 14.10% versus 28.37%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that MCHP will grow it’s earning at a 14.10% annual rate in the next 5 years. This is in contrast to ERF which will have a positive growth at a 28.37% annual rate. This means that the higher growth rate of ERF implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. MCHP has an EBITDA margin of 41.82%, this implies that the underlying business of MCHP is more profitable. The ROI of MCHP is 15.10% while that of ERF is 10.20%. These figures suggest that MCHP ventures generate a higher ROI than that of ERF.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, MCHP’s free cash flow per share is a positive 5.09, while that of ERF is positive 0.01.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for MCHP is 1.70 and that of ERF is 1.50. This implies that it is easier for MCHP to cover its immediate obligations over the next 12 months than ERF. The debt ratio of MCHP is 0.94 compared to 0.41 for ERF. MCHP can be able to settle its long-term debts and thus is a lower financial risk than ERF.


MCHP currently trades at a forward P/E of 12.96, a P/B of 7.02, and a P/S of 5.71 while ERF trades at a forward P/E of 9.31, a P/B of 2.43, and a P/S of 4.10. This means that looking at the earnings, book values and sales basis, ERF is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of MCHP is currently at a -15.7% to its one-year price target of 116.35. Looking at its rival pricing, ERF is at a -6.11% relative to its price target of 13.59.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), MCHP is given a 1.70 while 2.00 placed for ERF. This means that analysts are more bullish on the outlook for ERF stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for MCHP is 15.22 while that of ERF is just 3.45. This means that analysts are more bullish on the forecast for ERF stock.


The stock of Enerplus Corporation defeats that of Microchip Technology Incorporated when the two are compared, with ERF taking 6 out of the total factors that were been considered. ERF happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ERF is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ERF is better on when it is viewed on short interest.

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