Understanding Micron Stock from Price Ratios and Technical Indicators
Micron Technology (MU) stock is trading at its all-time high above $39.00. The market dynamics look attractive, encouraging institutional investors to buy the stock. The fundamental valuation shows that the stock is undervalued even at its peak price.
A stock is valued using price ratios where the stock price is divided with its fundamentals such as sales, EPS (earnings per share), and cash flow to understand what investors are willing to pay per dollar of sales, EPS, or cash. A low price ratio implies that stock is undervalued and gives a “buy” signal to long-term investors.
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Micron’s forward PE (price-to-earnings) ratio is 5.9x, which is significantly below NVIDIA’s (NVDA) PE ratio of 45.3x and Advanced Micro Devices’ (AMD) PE ratio of ~42.4x. We compared Micron’s PE ratio with NVIDIA, as both stocks are witnessing strong earnings. Alongside AMD, Micron stock turned from a loss to a profit.
Micron has a PS (price-to-sales) ratio of 2.5x, which is lower than NVIDIA’s PS ratio of 13.0x and AMD’s PS ration of ~2.7x. Micron’s PS ratio is in line with its previous high ratios of 2.5x and 2.6x in 2013 and 2014, respectively. A similar trend is visible in its PCF (price-to-cash-flow) ratio.
Is low valuation a good thing for Micron?
All price ratios show that Micron is an undervalued stock given its high earnings growth. Micron’s low valuation and strong stock price growth is attracting investors. However, this does not remove the risk of the trend reversing.
Micron’s historical price ratios peaked in 2013 when the stock price rose more than 200%. In 2014, its price ratios declined, and its stock price growth slowed to 60% in 2014. Another uptrend appeared in 2017 when its stock price increased 80%. Micron has a low valuation due to its boom-and-bust cycles.
At present, all fundamentals and market factors seem to favor Micron. Although the chances of memory oversupply are low in the current cycle, it has not been eliminated.
Micron (MU) is a highly traded stock and is currently in “overbought” territory. The stock is currently in an uptrend, as it is trading above its short-term and long-term moving averages of $37.00 and $36.00, respectively.
Micron stock is a “hold” as long as it remains above $36.00. The stock could continue to rise if the market conditions are favorable. However, if the stock falls below $36.00, it could trigger a “sell” signal.