Micron Technology, Inc. (NASDAQ: MU ) stock has returned to values not seen since the end of the dot-com boom. The Boise, Idaho-based producer of semiconductor systems began its rise from a low of under $10 per share in May of 2016. After a series of steady, consistent increases, the MU stock price has risen to over $40 per share.
Despite quadrupling in value in the last year and a half, Micron stock fundamentals show many signs the rally can continue.
To be sure, MU stock struggled through series after series of boom and bust cycles. Its semiconductors and drives experience continual deflation. Additionally, prices of its dynamic random-access memory (DRAM) and flash memory experience seemingly constant price fluctuations. Due to these changes, the company reported a loss in its diluted earnings-per-share as late as fiscal 2016.
However, since that loss, good fortune has returned, and memory prices have increased. Most analysts expect memory prices to remain high well into 2018. Unexpectedly slow production of 3D flash memory and fluctuating demand worsen the shortage. This situation serves to further benefit Micron. Despite increased demand, neither Micron nor its competitors have moved to increase capacity.
Aside from Intel Corporation (NASDAQ: INTC ), these fluctuations and the recent higher memory pricing also affect the stock prices of many of Micron's competitors. Advanced Micro Devices, Inc. (NASDAQ: AMD ) traded below $2 per share as late as February 2016. The stock trades at under $14 per share today. Applied Materials, Inc. (NASDAQ: AMAT ) followed a similar pattern, other than the fact that AMAT remained profitable in the leaner times.
How Micron Stock Is Still a Bargain
The only competitor to arguably outperform Micron is Nvidia Corporation (NASDAQ: NVDA ). NVDA enjoyed an eight-fold increase since early 2016. However, due to that increase, Nvidia's price-to-earnings ratio (over 50x) does not compare favorably to MU stock. Despite the quadrupling of its stock price, Micron stock still trades at a P/E ratio of about 18.
Furthermore, despite its P/E ratio, Micron is reporting strong growth numbers. In its Sept. 26 earnings report, Micron reported a 90% increase in revenue from the same quarter last year. And if predictions hold, fiscal 2018 EPS will rise to $7.27 per share before falling in 2019 to $6.79 per share.
Today, the MU stock price stands at less than 6 times earnings for 2018. Even if the stock traded at around 10 times earnings, the per-share price would be in the $70s by the end of fiscal 2018. While investors should re-evaluate the trade if the stock reaches that price, this trade would nearly double their investment.
That level would place the stock price close to analysts' highest MU stock price target of $76 per share. While this level is well above the current consensus ($45.50 per share), many analysts raised their price targets after the latest earnings report. They could increase further if the MU stock price continues to rise.
Bottom Line on MU Stock
With this good news, buyers will likely receive a price break on Micron stock. The company just announced it was issuing $1 billion worth of stock to pay down debt and retain a cash reserve for additional repurchases. Since more shares are coming to the market, EPS will be adjusted downward. While this could be negative for Micron stock in the short-term, it doesn't change the fact that it trades at a very cheap valuation.
The MU stock news and fundamentals indicate that the rally can continue. The stock price has risen steadily, and the company is cashing in on the higher stock price. Despite these moves, MU trades at a forward P/E of 6x. Additionally, market demand assures Micron can command high prices and profits for its memory chips for the foreseeable future.
Therefore, investors who want a quick trade in an industry that has returned to prominence should look no further than Micron stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned positions.
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