Micron Technology, Inc. (NASDAQ:MU) continues to make the skeptics look silly. The company’s latest earnings report added another fine quarter to Micron’s sizzling run. Yet MU stock hasn’t traded higher following earnings. In fact, Micron got hit pretty hard with the tech selloff on Monday and is now down 15% from its recent highs.

The reason for Micron’s underperformance shouldn’t be too surprising. People are still skeptical that this memory super-cycle isn’t about to fade. Sure, MU stock is ridiculously cheap, but investors don’t believe the good times will last. That’s probably not fair, though. The earnings here are simply too large to be ignored. That said, investors should think carefully about Micron’s capital allocation strategy.

Gigantic Earnings

For the most recent quarter, the company reported $3.15 in adjusted and $3.10 of GAAP earnings. That’s in one quarter, mind you, not the full year. Those numbers are amazing, representing more than a double from the same quarter last year. Annualized, Micron would earn more than $12/share merely if that level of profits continues. Do the math and you see MU stock seems oddly priced at $55/share — Micron is, in fact, trading at less than a 5 times forward price-to-earnings ratio.

Revenue growth also impressed. Sales increased 40% on the quarter versus the same one last year. But the big driver has been margins. Micron’s gross margin is up from 20% in recent years to more than 50% now, with operating margin up from a negative figure in 2012 and positive single-digits in other years to more than 40% now.

These massive margins are unsustainable. At some point, mounting competition will finally bring pricing back down to more normal levels. That said, Micron’s growth markets are on fire right now. Mobile, graphics and data centers are all hot, with no sign of an imminent slowdown. Cloud DRAM is particularly in fashion, with sales up 33% sequentially this quarter.

Analysts Love MU Stock

Just over the past two weeks, Micron stock has picked up a lot of analyst positivity. On June 18, Evercore ISI raised its price target for MU stock from an already ambitious $80 up to $100. Last week, Cowen raised its price target from $67 to $72. Meanwhile, The Benchmark Company initiated coverage recently with an $80 price target. With MU stock in the mid-$50s now, all those prices represent substantial upside.

However, all this bullishness may present a problem. If the analysts love the stock this much, there’s not much they can do to support the stock in the future. Notably, Morgan Stanley

downgraded MU stock from overweight to neutral late last month. But aside from them, the Street is quite bullish.

As contributor Dana Blankenhorn put it, “Micron Stock Looks Pretty Much Unstoppable“. And he’s right. Both the fundamental and technical factors looks extremely bullish for MU stock. But I’m wary of consensus. When most investors think the same thing, it can be hard to get the stock to move, since everyone is already on board.

Where Will the Profits Go?

Micron has a spotty record with capital allocation. Over the past fifteen years, Micron’s outstanding share count has nearly doubled. They issue tons of stock to employees. The company started to make a move to deal with dilution in recent years, as it bought back stock in 2016.

Oddly, however, Micron reversed this move last year, with a secondary stock offering last fall that puzzled analysts. Why, with the company minting money and the stock seemingly cheap, would Micron issue new stock? Now, management is again talking of a share buyback at significantly higher prices than its recent issuance.

Micron needs to do a better job protecting shareholder value.

With Micron’s generally expanding share count, investors are right to wonder what Micron will do with its windfall earnings. MU stock hasn’t paid a dividend since 1996, so don’t get your hopes up on that front either. And there are real limits to how much Micron can invest back into its business in an economic manner, as its industry is hyper-cyclical. Part of Micron’s challenge will be using these record earnings to create lasting shareholder value.

MU Stock Verdict

Micron stock is a near-consensus long at this point. The crowd isn’t wrong, though. The fundamentals here are amazing. Sure, the cycle will turn down at some point, but that point isn’t here now. As long as end demand for Micron’s products keeps booming, it will take awhile for supply to catch up.

Furthermore, ultimately, peak earnings don’t have to last that long to make MU stock far more valuable. With a forward price-to-earnings ratio under five, Micron is earning more than 20% of its market cap in earnings over the next year. That’s incredible. So, MU stock looks like a solid buy at this time. Just pay close attention to what management does with the proceeds. Their track record hasn’t been great.

At the time of this writing, the author held none of the aforementioned securities.