Over the last five days alone, Micron Technology, Inc. (MU) has sizzled to gains of nearly 20%, handily outpacing the 3.5% gains posted by the Nasdaq.
The recent surge can be put in perspective a bit by simply zooming out on Micron stock, though. Even with those gains, shares have been more than cut in half over the past year, with a nearly 16% decline in the books during 2016 alone.
The driver of that downfall? A dramatic decline in profits, for one. Micron’s quarterly revenue peaked in early 2015, with the most recent quarter representing a 30% year-over-year decline, and that’s taken a toll on the bottom line.
In that same quarter, the GAAP net loss neared $100 million.
Digging into the MU Stock Numbers
Getting a bit more specific, Micron manufactures semiconductor systems, including DRAM, NAND Flash and NOR Flash, which represent the basis for solid-state drives, modules, multi-chip packages and more. And unfortunately, the DRAM and NAND markets have been quite oversupplied of late, causing pricing pressure.
But that could be changing — which is why the direction of Micron stock is changing too.
The main driver of Micron stock’s pop this past week was actually a competitor’s earnings report. Applied Materials, Inc. (AMAT) posted strong second-quarter earnings and beat Wall Street’s expectations. But more relevant to Micron was the fact that the company is shifting to NAND and away from DRAM flash memory chips.
Applied Materials estimates DRAM spending will be down at least 25% year-over-year while NAND will grow 35% as the year goes on.
Analysts have been quick to point out that both trends are good news for Micron. Lower DRAM spending will help erase the aforementioned oversupply, while higher NAND spending should help expand margins for Micron.
That turnaround appears poised to show up in Micron’s results. While a loss is still on tap for the current quarter, a small profit is estimated for the quarter after. Meanwhile, Micron is slated to post earnings of 14 cents per share for all of 2016, followed by impressive growth to 86 cents per share next year as sales begin expanding again.
Those numbers are small potatoes compared to the company’s results in 2014, but it’s promising that things are beginning to move in the right direction — so promising, in fact, that analysts have been slapping Micron stock with “buy” recommendations left and right.
While things have been tough for Micron stock over the last year or so, I second that optimism. I don’t see Micron stock as a game changer, but it is a great value play after the recent bloodbath. Because of that, I don’t expect the dramatic outperformance of the recent week to continue, but I do expect the general uptrend to continue.
Any established player with market tailwinds at its back and organic growth in its future makes for a smart investment, and Micron has just that.
The recent surge leaves Micron stock at less of a discount, but there’s still room for upside.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
