Stock Analysis

Lower Guidance from Micron Technology (NASDAQ:MU) may be an Opportunity for Long Term Investors

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NasdaqGS:MU
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Micron Technology, Inc. ( NASDAQ:MU ) delivered a strong set of fourth quarter results yesterday, but the market focused on the weaker guidance offered by the company’s management and sold the stock today. The general weakness in the tech sector hasn’t helped either, and the market appears to now be looking for reasons to sell rather than buy each stock. 

Micron reported quarterly EPS of $2.34, up 116% from a year ago, while revenue of $8.27 billion was up 37% year-on-year. Both numbers were comfortable ahead of consensus estimates. Margins also continued to widen across the board, both sequentially and year-on-year.

The negative side came from guidance for the first quarter which was lowered considerably. Revenue guidance was lowered by as much as 13% while EPS were guided as much as 20% lower. In response several analysts have cut their price targets for the stock.

The Market Already had Realistic Expectations for Micron

Heading into this earnings report Micron was trading on a price-to-earnings ratio (or "P/E'") of 19.9x, which is only a little bit higher than the average US stock, which trades on a P/E of about 17x. The P/E ratio was also well below the semiconductor industry’s average P/E of 29.8x.

View our latest analysis for Micron Technology

NasdaqGS:MU Price Based on Past Earnings September 29th 2021
NasdaqGS:MU Price Based on Past Earnings September 29th 2021

Analysts were forecasting earnings growth of 25% over the next year, and revenue growth of 15% - both well ahead of the industry and the broader market. We are cautious of using P/E ratios as a valuation tool, but they do give us a good idea of how optimistic investors are about a company's prospects. When we consider the fact that Micron was expected to grow faster than the market and industry, its P/E was already quite modest. This implies that investors were already a little cautious of those forecasts. 

DRAM Demand

Micron earns more than 70% of its revenue selling DRAM (dynamic random access memory) products, with the balance coming from NAND products. The market for DRAM products is highly cyclical and subject to supply and demand imbalances. Historically, some of the best opportunities to invest in Micron have occurred during these cyclical downturns.

Some analysts had already predicted a decline in DRAM prices in the fourth quarter due to high inventory levels, so it wasn’t entirely surprising when Micron warned that shipments will fall in the current quarter. CEO Sanjay Mehrotra also said the shortages affecting other parts of the industry were affecting demand from PC customers.

The Key Takeaway

To a certain extent the lower guidance was already in the price for Micron. Demand for Micron’s products is expected to pick up again in 2022 when supply shortages in other parts of the industry ease.

In the short term, Micron’s share price is likely to be affected by sentiment in the semiconductor industry and the broader market, but further weakness would offer long term investors an opportunity. 

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Micron Technology .

We don't want to rain on the parade too much, but we did also find 1 warning sign for Micron Technology that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates . So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

What are the risks and opportunities for Micron Technology?

Micron Technology, Inc. designs, develops, manufactures, and sells memory and storage products worldwide.

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Rewards

  • Price-To-Earnings ratio (11.3x) is below the US market (15.1x)

  • Earnings are forecast to grow 58.78% per year

Risks

  • Significant insider selling over the past 3 months

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Share Price

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1Y Return

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Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Richard Bowman

Richard Bowman

Richard is an analyst, writer and investor based in Cape Town, South Africa. He has written for several online investment publications and continues to do so. Richard is fascinated by economics, financial markets and behavioral finance. He is also passionate about tools and content that make investing accessible to everyone.

About NasdaqGS:MU

Micron Technology

Micron Technology, Inc. designs, develops, manufactures, and sells memory and storage products worldwide.

Flawless balance sheet with high growth potential.