Key Points
It's been a long time since Micron opted for a stock split, but the huge rally in its shares suggests it could do so again.
Whether or not the shares split, Micron Technology remains a red-hot buy due to its terrific earnings growth potential.
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Shares of Micron Technology (NASDAQ: MU) have been on a red-hot run over the past three years, rising an incredible 639% during this period as it emerged that the memory specialist is turning out to be one of the biggest winners of the artificial intelligence (AI) revolution.
After all, Micron manufactures a key component that helps AI accelerator chips unlock their full potential. The demand for Micron's memory chips has exceeded supply, leading to a sharp increase in prices. This, in turn, has led to a remarkable increase in the company's revenue and earnings.
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The market has duly rewarded Micron stock for its impressive growth. However, an increase of more than 7x over the past three years has brought its stock price to around $450. Will this encourage Micron management to split the stock this year? Let's find out.
Image source: Micron Technology.
Micron Technology has a history of stock splits
Micron Technology has split its stock three times in its history. However, the last such split occurred in 2000. The reason management didn't undertake a split over all these years is the poor returns it has generated. The stock appreciated just 34% since its last stock split on May 2, 2000, to the end of 2024. The tech-focused Nasdaq Composite index clocked much bigger gains of 410% over this period.
Micron management, therefore, hasn't seen the need to split the stock since making the last such move at the turn of the millennium. But now that Micron's shares have jumped substantially in a very short period, management could opt for another stock split.
Investors, however, should note that a stock split is a cosmetic move that simply lowers the price of a share by increasing the number of outstanding shares. The fundamentals of a company don't change, though there is a belief that a stock split makes high-priced shares more accessible to more investors, thereby increasing demand and pushing up the price.
But many brokerages now allow investors to buy fractional shares, reducing the importance of stock splits. If you can buy fractional shares of Micron, you should consider doing so instead of waiting for a split.
The stock is a screaming buy
The most attractive thing about Micron stock is that it is incredibly cheap despite its multi-bagger performance. The trailing earnings multiple stands at 22, while the forward earnings multiple is even more attractive at just 8.
Clearly, Micron still has room to run higher, especially given that its earnings are expected to grow by 7x in the current fiscal year. The estimated earnings growth for the next fiscal year is also quite impressive at 71%. Even better, analysts believe Micron is undervalued given its long-term growth potential.
The stock has a price/earnings-to-growth (PEG) ratio of just 0.26. The PEG ratio is calculated by dividing a company's trailing P/E ratio by its estimated annual earnings growth for the next five years. A ratio below 1 indicates that a company is undervalued relative to its growth potential.
So, investors are getting a great deal on this tech stock right now, and they should consider grabbing it with both hands as the favorable demand-supply environment in memory chips can send it soaring for years to come.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
