The behavior of Micron Technology, Inc. (NASDAQ:MU) stock has left investors scratching their heads. The equity enjoys a shortage in its coveted DRAM and NAND memory lines that have sent profits to record highs. Seeing its upgraded guidance for Q2 has only bolstered the bright future for MU stock. Despite the good news, the stock trades at a rock-bottom valuation.

However, even considering Micron stock’s very cyclical history, the cycle favors an upward move in the near term.

With MU Stock, Past Performance Weighs on the Equity’s Future

Finding an analyst with a bearish outlook on MU stock remains difficult. Our own Bret Kenwell describes it at as “too cheap to ignore.” Dana Blankenhorn calls the stock “still undervalued.” Upbeat guidance and a price-to-earnings (PE) ratio of just over four times 2018 earnings leave investors wondering what gives?

The history of Micron stock reveals the short answer to that question.

MU stock has never seen a long-term uptrend like memory companies such as Intel Corporation (NASDAQ:INTC) experience. Much like peers such as Western Digital Corp (NASDAQ:WDC) and Seagate Technology PLC (NASDAQ:STX), company fortunes rise and fall with memory prices.

The need for memory has evolved from PCs and servers into smartphones and tablets, yet the stock remains a proxy for memory prices. Over the last year, the industry has enjoyed the high prices — and high profits — that come with a memory shortage. Micron stock had headed toward $50 in November when word of slowing price growth in NAND memory prices sent the stock reeling. Unfortunately for MU stock investors, the equity has not recovered from this report. The recovery failed to materialize despite the fact that DRAM memory, also produced by Micron, remains in a state of shortage.

Valuations Should Push MU’s Stock Price Higher

Despite the current fears, memory shortages remaining intact, and MU stock should rise as a result. To gauge behavior, analysts should look to the previous memory shortage in 2014. In that year, profits peaked at $2.54 per share and the stock reached a high of over $36 per share. This gave MU a valuation of about 14 times earnings. However, the shortage ended, and the stock fell to under $10 per share by the middle of 2016. This relatively recent price drop likely remains in the back of investors’ minds today.

I’ll be the first to concede the stock could fall below $20 per share if the market sees a glut in both NAND and DRAM memory. Still, both memory production estimates and earnings indicate the shortage remains intact. When the fiscal year ends in August, consensus estimates place AMD earnings at $10.12 per share. Hence, reaching that peak valuation again would take share prices to over $140 per share, an increase of about $100 per share from current levels. MU stock may not rise that high. However, the increase should finally surpass the record high of nearly $94 per share set in June 2000.

Concluding Thoughts on MU Stock

Although fear remains high, memory shortages, rising profits and low valuations indicate that tech investors should go long on MU stock.

As memory prices have gone, so has Micron stock. For that reason, investors live in fear of yet another massive drop in Micron’s stock price. This is likely why a report in November that NAND memory prices had leveled off sent MU stock downward. Investors should always remember that MU stock has historically served as a proxy for memory prices. However, with DRAM memory, a much larger memory segment than NAND, shortages remain. This sent guidance up and has set MU stock on a path to trading at around four times earnings.

Warren Buffett famously said, “be fearful when others are greedy, and greedy when others are fearful.” With MU stock at such a low valuation, now is the time for greed.

As of this writing, Will Healy is long MU stock.