Why MACOM (MTSI) Shares Are Sliding Today

Anthony Lee /
2024/01/03 3:21 pm EST

What Happened:

Shares of network chips maker MACOM Technology Solutions (NASDAQ: MTSI) fell 5% in the afternoon session after minutes from the December 2023 Fed meeting revealed that there is uncertainty regarding rate cuts in 2024. The committee added in the meeting remarks "In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves." 

As a reminder, the Fed hinted at a more accommodative interest rate stance last month, signaling three quarter-point rate cuts in 2024 as a result of taming inflation. Today, the minutes showed that the path forward may not be as smooth or predictable as the markets may have thought. As a rule of thumb, the market dislike uncertainty and increases in uncertainty tend to be followed by volatility. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory are not macro prognosticators. Instead, we think there are opportunities to pick market-beating stocks in any macro backdrop. We remain steadfast in our view that it's best to own high-quality companies with margins of safety over the long term in any market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy MACOM? Access our full analysis report here, it's free.

What is the market telling us:

MACOM's shares are somewhat volatile and over the last year have had 6 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 8 months ago, when the company dropped 5.2% on the news that the company reported second-quarter results that narrowly beat analysts' revenue, operating income, and earnings per share (EPS) expectations. However, free cash flow missed, and inventory levels increased. In addition, revenue and EPS guidance for the next quarter were below Consensus estimates and management noted that "the second half is expected to be more challenging." It was a mixed but overall negative quarter given the outlook.

At $84.79 per share MACOM is trading 11.2% below its 52-week high of $95.51 from December 2023. Investors who bought $1,000 worth of MACOM's shares 5 years ago would now be looking at an investment worth $5,997.

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