Micron Technology (NASDAQ: MU)
Micron Technology, Inc. is an American producer of computer memory and computer data storage including dynamic random-access memory (DRAM), flash memory, and USB flash drives. It is headquartered in Boise, Idaho. Right now, the company is a world leader in memory storage solutions. Micron recently released its report for the fiscal third quarter that has garnered mixed sentiments, this caused an increase in mentions by a massive 223% prompting investors to wonder what makes Micron so hyped. Currently, Micron shares trade at $57.37 per share.
There are lots of reasons you should consider taking a position in Micron Technology, here are some of the major ones.
The company had a record quarterly revenue of $8.64 billion, up 16% year over year and with this record revenue, it reported a strong net income of $2.6 billion.
The company's earnings shot up 35% over the year-ago period to $2.59 per share last quarter, which was impressive considering the headwinds Micron faced going into its quarterly report. The numbers were better than analysts' expectations
Micron's operations are the best they've ever been under new management, with their gross margins now 2% above the industry average (better than 2016 when they were 13% below average).
Micron now pays a quarterly dividend, which was introduced last year. The company just raised its new payout from $0.40 to $0.46 annually and might continue to do so too.
The biggest green flag for investing in Micron right now is the secular growth that the memory market is expected to have in the long run. Micron estimates that its total addressable opportunity in 2021 in the DRAM markets was worth $161 billion but is expected to hit $330 billion by the end of the decade.
Micron is looking to shift its revenue mix toward faster-growing markets such as data centres, automotive, cloud computing, networking, and graphics. It estimates that it could get 62% of its total revenue from these high-growth markets by fiscal 2025 as compared to 38% in fiscal 2021.
Micron's earnings multiple of just 6, which is too cheap to ignore given its bright long-term prospects.
Coming back to right now, if we’ve learnt anything from history it’s that Micron's stock tends to bottom before earnings do. The last memory bear market was from mid-2018 to 2019. Micron's stock bottomed in late 2018, a few months after the peak in EPS but Micron's earnings per share didn't bottom until late 2019; by that time, the stock was 70% higher.
Lastly, more COVID-19 lockdowns were reported in China and because of the specific cities where lockdowns are currently occurring, this could be good for Micron, as its largest rivals in DRAM memory and NAND flash have significant operations in the affected cities.
If supply is disrupted, it's possible memory prices may not fall as much as feared too.
Although there are lots of reasons Micron might be a good investment, it is just as important to see why it might not be as well. Some of the reasons it might not be the best time to invest in Micron right now are as follows.
Supply chain challenges and a slowdown in the technology space have made investors and analysts nervous about the semiconductor space right now, they are expecting prices to drop due to a fall in demand.
Micron released poor forward guidance that analysts didn’t like. First, the guidance expects a 13% year-over-year drop in earnings which is a swift reversal of its Q3 pace. Moreover, there's an $800 million range in the revenue guidance, reflecting outsize uncertainty from management in just the next three months.
The company expects to earn $1.63 per share this quarter on revenue of $7.2 billion whereas Wall Street was looking for $2.60 per share in earnings on $9.15 billion in sales.
It's challenging to know where Micron's stock is going in the near term, especially with so many crosscurrents hurting both supply and demand in China, as well as huge uncertainty over the path of interest rates and inflation. However, one thing we do know is that the demand for memory and storage is set to grow by leaps and bounds this decade, and Micron has become an industry leader in the latest DRAM and NAND technologies. With it down about 40% from its all-time highs in January and with a low price-to-book value, longer-term value-oriented investors should definitely take a look at its shares today.
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