Shortly after reporting incredibly strong quarterly results and issuing a great outlook, shares of Micron Technology Inc. (NASDAQ: MU) topped out at around $60 a share, only to fall gradually. If the company reported a strong quarter and business is getting better, why is Micron stock not above $60? More important, when will the stock rebound back to that level?

Second-Quarter Beats Estimates

Micron reported earnings of $2.82 a share on revenue of $7.35 billion. It beat consensus by $0.08 a share and $70 million, respectively. With revenue up 58.1 percent over last year, one would expect Micron stock to trade at new highs. Investors may be worried over the recognition of non-operating losses worth $23 million in the second quarter.

This is due to Micron converting $71 million in aggregate principal amounts in its notes in Q2. The move increase the carrying value to $238 million and results in a non-operating loss recognition.

The write-down also created confusion for Western Digital Corporation (NASDAQ:WDC) shareholders, which also took a write-down as it made similar moves to improve its balance sheet. Both companies actually end up with a healthier capitalization structure.

This strengthens the positions in the company finances for the times when revenue eventually decelerates or declines. After all, the storage and the memory markets are both cyclical, so management must plan for its ups and downs.

Low Valuations for Micron Stock

At a recent price of around $52 a share, MU stock trades at around six times earnings. The forward P/E is even lower at 5.1 times. This implies the analyst, at Robert W. Baird, setting a $100 price target on Micron shares more than reasonable. A 10 times or 12 times P/E is on the low side for a company growing earnings at an expected 30 percent over the next five years.

Risks

Micron’s EPS expectations next year will fall by around 7 percent. The outlook is consistent with Micron setting a modest DRAM supply growth forecast of 20 percent in 2018. NAND supply will still top industry estimates, at 45 percent. But management may be on the conservative side of its forecast.

Management may have decided to bake in a gross margin decline even though this scenario is unlikely. Still, any of its competitors may raise supply or demand may unexpectedly drop as customers slow their spending on storage and memory upgrades.

The market’s general decline in the last few weeks is not helping MU stock either. Escalating threats between China and the U.S. may turn from idle to a full-on tariff war. This would create an immediate drop in world trade, slow the economy and most certainly indirectly hurt Micron’s business in the near-term.

On April 4, the U.S. proposed tariffs of 25 percent on Chinese products worth $50 billion. It also targeted the semiconductors and electronic components markets. In response, China slapped taxes on 106 American products.

Earnings Before Trade War All but Forgotten

Assume for a moment that the trade wars is not happening and Micron’s run its business as usual. The company stands to earn $11 a share at an annualized run rate this year. At a $60 share price, Micron stock would still trade well-below a 5.5 times P/E. The outlook excludes Micron raising DRAM production.

Now, if trading between China and the U.S. does get constrained, Micron will par output but that amount is not very clear.

Takeaway

The trade war is taking center stage in the news cycle, hurting the price of Micron stock. Investors may choose to ignore the noise. If the trade war does not happen and the two countries come to an agreement, Micron’s stock will recover. When? It depends on when this trade war news cycle ends.

Disclosure: the author does not own shares in any of the companies mentioned in this article.