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Can Micron (MU) Speed Higher?

Tuesday, January 30th, 2018

Micron is in the technology sector and the semiconductor-memory chips industry. The company serves a variety of applications including cloud, data center, and data security in a wide array of industries including automotive, consumer, and financial.

The current price for MU is $41.67 and the 52-week range is $22.64 - $49.89.

Looking at the valuation ratios, they all compare favorably to the industry average. The current Price/Earnings Ratio is 6.82, which is below the industry average of 24.87. This is a positive, as we like to see valuation ratios below the industry average as it shows we are getting a good value for that given metric. Price/Sales of 2.16 is also below the industry average of 3.76; Price/Tangible Book Value of 2.39 is favorable against the industry average of 14.17; and Price/Cash Flow of 4.25 is well below the industry average of 14.79.

Micron currently does not pay a dividend, but this should not deter you as an investor. We equate dividends to icing on the cake. A company can pay no dividend but still be a worthy investment. It is best to look at the potential total return or capital appreciation plus dividend, rather than merely looking for a nice dividend yield.

Sales have risen by 71.36% quarter over quarter versus the industry average which has seen growth of 15.21%. Sales have seen an increase of 77.86% year over year versus the industry average which has risen by 17.02%. It is important to understand where this sales growth came from and if the sales are sustainable moving forward.

EPS growth looks interesting as it has risen 1,225% quarter over quarter. This far outpaces the industry average of 97.87%. Year over year EPS growth also looks strange as it grew 2,216.83%, far outpacing the industry average of 121.34%. Like the sales growth, it is important to understand where the growth occurred and if it is sustainable.

The balance sheet looks very strong as there is a current ratio of 2.39 which shows the company has current assets of more than double its current liabilities. Also, the Debt/Equity of 40.2% is below the industry average of 45.9%. This is a positive as it shows the company is not over leveraged.

Looking forward to August 2019 and using a forward multiple of 16.5, estimated GAAP EPS of $8.62 gives us a target sell price of $142.23. While this looks very attractive, I am concerned by the peaks and troughs from this businesses past. As an example, the company went from making $2.48/share in 2015 to losing $0.27/share in 2016 to making $4.41/share in 2017. Micron has a lot of potential, but the cyclicality would need to be researched further and understood before investing in the company.

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