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Micron Technology stock has slumped into a technical bear market after falling from the year-to-date high of $1,253 in June ro $878 today. This retreat has coincided with the ongoing sell-off among memory stocks. This article looks at some of the reasons why the sell-off may be a gift to patient investors.
Micron stock to benefit from memory sector growth
The most notable bullish catalyst for MU stock is that the memory sector growth is accelerating despite the ongoing AI bubble fears. Its last earnings report and forward guidance demonstrates this.
Microm made over $54 billion in the fourth quarter, driven by its DRAM business. This revenue growth was faster than what analysts were expecting and what it had guided previously.
Micron’s management expects that its Q1 revenue will continue rising, crossing the $60 billion milestone. Yahoo Finance data shows that the average estimate is that its revenue will come in at $61.7 billion, up by 352% from a year earlier. For the year, Micron is expected to make $275 billion, followed by $318 billion next year.
These growth metrics are excellent, especially for a company that was started in 1978. Most notably, the company has a clear visibility of its short-term revenue growth because of the long-term contracts it has entered with its clients.
Margins have also continued growing. Its gross margin jumped to 86.8% last quarter and this trend may continue.
Micron Technology plans to repurchase its stock
Micron has reducing its outstanding shares in the past few years through its share repurchase program. It repurchased shares worth $2 billion in the last quarter. These buybacks have been quite tiny, especially for a trillion dollar company.
The reason for this is that Micron was a top beneficiary of Joe Biden’s CHIPS Act, which placed limitations on the amount of money that companies can buy.
These restrictions will end in December, and the company has signaled that it will repurchase shares worth over $35.6 billion. The buybacks will benefit investors by reducing the amount of outstanding shares, which will boost the earnings-per-share.
We believe that the $35 billion buyback plan is quite conservative as the company ended the last quarter with $73 billion in cash and short-term investments.
Micron shares are highly undervalued
Meanwhile, Micron is one of the cheapest companies one can invest in. While its revenue growth is accelerating, Micron has a trailing twelve month (TTM) price-to-earnings ratio of 11.64. Its forward PE based on non-GAAP basis is just 4.98. On a GAAP basis, the stock has a multiple of 5.0.
These numbers mean that, if one bought Micron Technology today, assuming no growth at all, it would take about 5 years for the investment to breakeven. In contrast, a similar transaction with Nvidia would take over 22 years.
The company also has one of the best rule-of-40 metrics. Adding its 256% revenue growth and its 63% net income margin gives a metric of 320%.
Micron stock remains above a key dynamic support
MU stock chart | Source: TradingView
The daily chart shows that MU stock has slipped sharply in the past few days, moving from a high of $1,107 earlier this month to the current $878. It has already dropped below the ascending trendline that links the lowest levels since August 6.
On the positive side, the stock remains above the 200-day moving average, which has provided it with robust dynamic support. Therefore, the stock will likely bounce back later this year as investors rotate back to AI companies.
The post Micron stock is stuck in a bear market: 4 reasons this crash is a gift appeared first on Invezz