From May 2016 to November 2017, Micron Technology, Inc. (NASDAQ:MU) was one of the hottest stocks on the market, rocketing from $9 to $49 in just 18 months. Since then? Micron stock has fallen back. It seems like a natural correction. But could it be more than that?
Generally, two months of churn is not a lot to fret about in the big picture. But when it occurs at a time when the broad market has advanced more than 9%, it’s a bit more puzzling.
For better perspective, let’s take a look at how Micron’s closest competitors in the chip space have performed over the last couple months.
MU Lags Behind Other Chipmakers
Here are the returns of Micron stock and a few other chip stocks, dating back to November 20:
- Micron: -9%
- Advanced Micro Devices, Inc. (NASDAQ:AMD): +11.5%
- Nvidia Corporation (NASDAQ:NVDA): +11%
- Applied Materials, Inc. (NASDAQ:AMAT): -2%
- Intel Corporation (NASDAQ:INTC): +1.7%
So, MU isn’t the only semiconductor stock that’s missed out on the latest market push to greater heights, although it has certainly fallen the furthest.
Could it have something to do with Micron’s growth? Not likely.
The company grew sales by 71% in its latest quarter, and earnings per share ($2.45) were eight times what they were the previous year. Things are supposed to get even better in the current quarter, which ends February 28: Analysts anticipate EPS to come in at $2.57, with 51% sales growth. No red flags there. In fact, Micron is expanding both its top and bottom lines at rates faster than Advanced Micro Devices or Nvidia.
There are no problems with Micron’s products, either. In fact, demand for its memory and data-storage chips has never been higher, despite recent price hikes.
On top of all that, Micron stock is actually cheaper than all the other chip stocks I just mentioned, trading at less than 7 times trailing earnings and just over 5 times forward earnings estimates. NVDA has a price-earnings ratio of 50, Applied Materials has a P/E of 17, and Advanced Micro Devices hasn’t been consistently profitable.
MU Stock Is Fine
Add it all up, and there’s nothing wrong with MU stock. Fundamentally, it looks like one of the strongest companies in a red-hot and increasingly competitive sector. Yes, that competition could eat away at Micron’s market share in the coming years. But right now, the company is well-positioned.
That leads me to conclude that this two-month lull in MU is simply the result of some natural consolidation after a major run-up over the previous 18 months. Since the Micron stock price dipped just below $40 in early December, it hasn’t managed to climb higher than $46. Any move above that resistance and I’d look for the stock start a new, sustained rally.
The company expects a slowdown in 2019. But this year, with earnings expected to nearly double and sales supposed to increase another 36%, I expect Micron stock to push well above $50 a share.
Currently trading at the midpoint ($43) of its two-month range, this looks like an ideal intermediate-term buying opportunity for a stock that appears to be in temporary holding pattern.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
