uploads///A_Semiconductors_MU peers price ratio

Micron’s Price Ratios Reflect Improved Earnings, Free Cash Flow


Mar. 19 2019, Updated 11:19 a.m. ET

Micron’s PE ratio

Micron’s (MU) price ratios will always be lower than those of other semiconductor companies because the cyclical nature of its business prevents it from reporting steady growth every year. 

Micron has improved its profits and cash flows over the years to handle the industry downturn more efficiently, which has improved its PE and price-to-free cash flow ratios. These ratios tell us the amount investors are willing to pay per dollar of a company’s EPS and free cash flow.

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Price ratios in 2016

In the 2016 industry downturn, Micron’s PE and price-to-free cash flow ratios bottomed out at zero in fiscal 2016 as its EPS and free cash flow turned negative because it was not cost-competitive. Rivals Western Digital (WDC) and Seagate (STX) had PE ratios of 34.86x and 25.64x, respectively, at the end of fiscal 2016.

Current price ratio

In the last two years, Micron invested in technology and reduced its cost gap with competitors, which helped it boost its earnings in the upturn. It’s currently trading at a PE ratio of 3.2x, lower than WDC’s and STX’s PE ratios of 16.5x and 6.9x, respectively. Micron’s price-to-free cash flow ratio is also lower than those of its peers.

Micron’s PE and price-to-free cash flow ratios are set to fall in fiscal 2019 as falling memory prices reduce its earnings and cash flow. Next, we’ll see what the company’s falling price ratios tell investors.


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