Micron Technology Inc (NASDAQ: MU) engages in the provision of innovative memory and storage solutions. The company was founded in 1978, and is headquartered in Boise, ID.
As of 25 March 2022, the company's stock is trading at $76.16 and year-to-date (YTD), it is down by 20%. Over the past year, the stock is down by 9% whilst the S&P 500 is up by 16%, meaning the stock has performed worse than the broader market by approximately 25% over this period.
Is Micron Technology Inc worth considering as a 'buy and hold' investment? Let's analyze whether the stock has potential or if it's one to avoid.
The importance of fundamental analysis
'Fundamentals' are a set of key metrics which can help you, as an investor, assess the financial health of an organization as well as its growth prospects. Over the long term, a company's stock price usually reflects its fundamentals, and analyzing these gives us a better understanding of the underlying trends which can tell us if the company is likely to be a good investment over the long term.
There are a number of fundamental metrics to look at, but the ones we'll focus on are price to earnings ratio (P/E ratio), price to book value (P/BV), price to sales ratio (P/S ratio), earnings per share (EPS) and debt. When they are analyzed together, these metrics can start to 'paint the picture' and help you understand if a company is a solid investment.
With this in mind, let's take a look at Micron Technology Inc's fundamentals and see if they can tell us anything about the company's potential as an investment opportunity.
Micron Technology Inc stock fundamental analysis
EPS is the first metric we'll look at, and this is used by investors to gauge the profitability of a company on a 'per share' basis. It is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares.
Based on its last reported balance sheet, Micron Technology Inc's EPS is 5.1, and year-on-year, it increased by 117%. That's what we like to see.
Another key metric to look at is the P/E ratio because it immediately tells a potential investor how cheap or expensive the stock is. The ratio tells us how much investors are willing to pay for a company's earnings, and it is calculated by taking the price of a stock and dividing it by the EPS. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates it might offer more value.
MU has a P/E ratio of 12.1, based on its most recent financials. This is 55% lower than the average P/E ratio across an industry benchmark, which is (26.9) and tells us that the stock is inexpensive in relation to how much it earns.
Next, let's look at one of the most common valuation metrics - the P/S ratio. It is calculated as the current price divided by sales for the previous 12 months, and helps us get a sense of how much investors are willing to pay for a company's revenues on a 'per dollar' basis.
Micron Technology Inc's P/S ratio is currently 3. Compared to the sector-wide average of 7, this is 57% lower, indicating that the stock may offer more value compared to other companies in the same sector.
Another key metric to look at is a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
Based on its most recent financials, Micron Technology Inc's P/BV is 1.9, and this is 69% lower than the average across the industry, which is 6.2.
Finally, when analyzing an investment opportunity, you should always take a look at how much debt a company has on its books, as this can help you assess how risky it is as an investment. Carrying a large amount of debt can be a red flag if the company is not generating enough free cash flow to service the debt.
Micron Technology Inc has total debt of $7.28bn as of 25 March 2022, and this has climbed by 1% over the past year. Adjusting for $8.63bn in cash & short-term investments, the company has a 'net debt' of $-1.35bn.
Based on these figures, Micron Technology Inc's current levels of net debt don't worry us, as the company generates enough revenue to service its debt, and is not using debt to fund its operations, which is good to see.
The bottom line on MU's stock
All in all, we've noticed some trends at Micron Technology Inc that paint a mixed picture.
Notably, the stock is down by 20% YTD. And whilst it's good to see that, compared to companies in the same sector, MU has a lower P/E ratio, lower P/BV and lower P/S ratio, we can't ignore the fact that the company is also down by 9% over the past year.
In summary, although there are positive signs, we're not convinced Micron Technology Inc deserves a place in your portfolio just yet, but we'll certainly be adding the stock to our watchlist.
As with any stock, however, there are additional factors to consider before making an investment decision. This analysis is general in nature and based on historical data, and it does not take into account your specific investing objectives or financial circumstances. Additionally, this article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long term outlook. Please do your own due diligence before deciding to invest.