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3 Reasons Micron (MU) Stock Looks Dirt Cheap Right Now
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Micron (MU - Free Report) investors certainly ignored the “Sell in May and Go Away” adage in early morning trading Tuesday, with shares of the popular memory chip manufacturer gaining about 1.5%—despite continued volatility throughout the broader market.
Shares of Micron have actually struggled to generate momentum since the company’s latest earnings announcement in late March, suggesting that investors are no longer piling into this growth stock en masse.
Part of this has to do with muted expectations for the entire memory market going forward, with many bearish traders calling for the expiration of cyclical growth trends to cause a major pullback soon. However, Micron’s outlook was relatively sound just a month and a half ago, and its growth prospects appear strong for at least the next year.
This means that Micron has entered an extremely attractive territory for value investors. In fact, it might be one of the strongest value plays in the entire technology sector. Here’s three reasons why Micron looks so cheap right now.
Forward 12-Month Earnings
Micron shares are currently trading at a significant discount to the company’s peer group in terms of forward 12-month earnings:
Micron’s peer group includes Western Digital (WDC - Free Report) , Seagate (STX - Free Report) , and Toshiba. Each of these companies has expertise in different areas and are not always directly competing, but they all reflect the commoditization of the memory business.
As we can see, Micron is cheaper than this group when looking at its Forward P/E. This tried-and-true value metric accounts for the company’s expected profits over the next year, so investors can rest assured that they are getting a great price for Micron based on its future outlook.
PEG Ratio
In addition to the Forward P/E, value investors are always interested in a stock’s PEG ratio. Here’s how Micron has stacked up against its peers recently:
The PEG is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company’s expected earnings growth rate. Some investors are willing to pay premiums for companies with explosive growth potential, but the PEG helps value investors find stocks that are both undervalued and set to expand rapidly.
As we can see, Micron’s PEG has traded basically in line with its peer group over the past year, but this stills comes in at a noticeable discount to the average of 1.9 displayed by our larger “Computer and Technology” sector.
Improving Analyst Outlook
The above metrics have helped Micron earn an “A” grade in the Value category of our Style Scores system. Of course, this is only part of the picture for most value investors. Indeed, we have found that “cheap” stocks are the strongest when they are paired with great Zacks Ranks.
The proven Zacks Rank model, which emphasizes earnings estimates and estimate revisions, helps highlight stocks that are poised to provide superior returns over the next one to three months. Micron is currently a Zacks Rank #1 (Strong Buy), and this is because of the company’s improving analyst earnings outlook.
Within the past 60 days, Micron has witnessed nine revisions to its full-year EPS estimates, with 100% agreement to the upside among revising analysts. These positive revisions have lifted our consensus estimate for the company’s 2018 earnings by 48 cents in that time. Micron is now expected to report EPS growth of 122% on revenue growth of nearly 44% this year.
Bottom Line
Micron has experience volatility lately, but the stock is looking to rebound strongly, and key valuation metrics indicate that shares are likely being underpriced by the market right now. Meanwhile, an improving earnings outlook underscores the company’s strength in the near term. This should make investors optimistic right now.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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3 Reasons Micron (MU) Stock Looks Dirt Cheap Right Now
Micron (MU - Free Report) investors certainly ignored the “Sell in May and Go Away” adage in early morning trading Tuesday, with shares of the popular memory chip manufacturer gaining about 1.5%—despite continued volatility throughout the broader market.
Shares of Micron have actually struggled to generate momentum since the company’s latest earnings announcement in late March, suggesting that investors are no longer piling into this growth stock en masse.
Part of this has to do with muted expectations for the entire memory market going forward, with many bearish traders calling for the expiration of cyclical growth trends to cause a major pullback soon. However, Micron’s outlook was relatively sound just a month and a half ago, and its growth prospects appear strong for at least the next year.
This means that Micron has entered an extremely attractive territory for value investors. In fact, it might be one of the strongest value plays in the entire technology sector. Here’s three reasons why Micron looks so cheap right now.
Forward 12-Month Earnings
Micron shares are currently trading at a significant discount to the company’s peer group in terms of forward 12-month earnings:
Micron’s peer group includes Western Digital (WDC - Free Report) , Seagate (STX - Free Report) , and Toshiba. Each of these companies has expertise in different areas and are not always directly competing, but they all reflect the commoditization of the memory business.
As we can see, Micron is cheaper than this group when looking at its Forward P/E. This tried-and-true value metric accounts for the company’s expected profits over the next year, so investors can rest assured that they are getting a great price for Micron based on its future outlook.
PEG Ratio
In addition to the Forward P/E, value investors are always interested in a stock’s PEG ratio. Here’s how Micron has stacked up against its peers recently:
The PEG is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company’s expected earnings growth rate. Some investors are willing to pay premiums for companies with explosive growth potential, but the PEG helps value investors find stocks that are both undervalued and set to expand rapidly.
As we can see, Micron’s PEG has traded basically in line with its peer group over the past year, but this stills comes in at a noticeable discount to the average of 1.9 displayed by our larger “Computer and Technology” sector.
Improving Analyst Outlook
The above metrics have helped Micron earn an “A” grade in the Value category of our Style Scores system. Of course, this is only part of the picture for most value investors. Indeed, we have found that “cheap” stocks are the strongest when they are paired with great Zacks Ranks.
The proven Zacks Rank model, which emphasizes earnings estimates and estimate revisions, helps highlight stocks that are poised to provide superior returns over the next one to three months. Micron is currently a Zacks Rank #1 (Strong Buy), and this is because of the company’s improving analyst earnings outlook.
Within the past 60 days, Micron has witnessed nine revisions to its full-year EPS estimates, with 100% agreement to the upside among revising analysts. These positive revisions have lifted our consensus estimate for the company’s 2018 earnings by 48 cents in that time. Micron is now expected to report EPS growth of 122% on revenue growth of nearly 44% this year.
Bottom Line
Micron has experience volatility lately, but the stock is looking to rebound strongly, and key valuation metrics indicate that shares are likely being underpriced by the market right now. Meanwhile, an improving earnings outlook underscores the company’s strength in the near term. This should make investors optimistic right now.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>