Stock Analysis

Micron's (NASDAQ:MU) Results Suggest the Market may be Underestimating Potential

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Shares of Micron Technology, Inc . ( NASDAQ:MU ) are up 8% in pre-market trade after the company reported first quarter 2022 results. The results were better than expected across the board and the company also raised guidance for the current quarter which ends in February. Micron has underperformed this year relative to other semiconductor stocks, and there has been a disconnect between the share price and the earnings some analysts are forecasting.

These results suggest the market may be underestimating Micron’s potential for 2022. 

First quarter results highlights:

  • Normalized EPS of $2.16 were $0.05 better than expected and up 176% YoY.
  • GAAP EPS of $2.04 were $0.02 better than expected and up 187% YoY
  • Revenue of $7.69 bln was better than expected and 33% higher than a year ago.
  • Second quarter revenue guidance rose to $7.5 bln (vs consensus of $7.32 bln) and EPS guidance rose from $1.86 to $1.95.
  • Sales were driven by strong demand from datacenters and other data intensive industries.

How do these results stack up against Micron’s P/E ratio?

Micron’s price-to-earnings (or "P/E") ratio was 15.7x before these results were published. This is directly in line with the median US company, and implies investors felt somewhat indifferent to the company’s growth prospects.

View our latest analysis for Micron Technology

NasdaqGS:MU Price Based on Past Earnings December 21st 2021

Does Growth Match The P/E?

The current P/E ratio appears at odds with the company’s earnings growth over the last year. However, there have been some concerns about potential oversupply in the memory market in 2022 - we covered these concerns here .

On average, over the next few years analysts are expecting to see earnings growth of 19%. However, there is a lot of disparity within that number. Most analysts agree that growth will be strong next year, but taper off over the following years. There is also a wide range between the high and low forecasts for 2022 and 2023. The following chart illustrates the range in estimates.

NasdaqGS:MU Earnings per Share Growth Forecasts December 21st 2021

In 2022, EPS estimates range from $5.60 to $11.35, with an average of $8.40. This implies the forward PE for August next year is somewhere between 7x and 15x.

In 2023, EPS estimates range from $$8.15 to $16.30, with an average of $11.45. This implies the forward P/E to August 2023 is between 5x and 10x.

What We Can Learn From Micron Technology's P/E?

Micron’s results (and the commentary that went with it) may point to better than expected 2022. If the company can outperform the average estimates, the growth rates will be well ahead of the market, and the current and forward price to earnings ratios look quite low.

The caveat here is that Micron operates in a cyclical industry. Demand can rise faster than expected and it can also fall faster than expected. This often results in the stock price overshooting on the downside and on the upside.

For a more comprehensive picture on analyst estimates for the company? Then our free report on Micron Technology will help you uncover what's on the horizon.

You might be able to find a better investment than Micron Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

Valuation is complex, but we're helping make it simple.

Find out whether Micron Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.