Micron (NASDAQ:MU) stock has lost momentum in recent weeks as investors have taken profits. After peaking at a record high of $1,090 earlier this month, it retreated to $856 on June 9 before ending the week at $980. Still, analysts remain optimistic about the stock, as its valuation metrics point to further gains.
Analysts are Bullish on the Micron Stock
Micron has become one of the best-performing companies in Wall Street. It has jumped by 232% this year, making it the second-best performing company in the S&P 500 Index after Sandisk (NASDAQ:SNDK).
Micron has soared by over 1,100% in the last 12 months, with its market capitalization crossing the $1 trillion mark.
Wall Street analysts are bullish on Micron, citing its large and growing addressable market and the ongoing DRAM shortage. Benzinga data shows that most pros have boosted their targets for the stock.
Wolfe Research's Chris Caso hiked his target from $550 to $1,250, while Wells Fargo's Aaron Rakers hiked from $550 to $1,220. Cantor Fitzgerald hiked to $1,500, while Morgan Stanley's Joseph Moore hiked to $1,050.
Most of these analysts boosted their outlooks after the company published its strong financial results. The most recent numbers showed that its revenue surged by 75% QoQ and 196% YoY to $23 billion. Most of this growth was because of its DRAM business, which made $18.8 billion.
Analysts are optimistic that the growth will continue as the AI boom continues. The average estimate is that the annual revenue will jump by 200% to $111 billion, followed by $183 billion next year.
Valuation Multiples Show That MU Stock Has More Upside
Despite the ongoing surge in Micron's stock, there are signs that the company may still be undervalued, which could support further gains.
According to FactSet (NYSE:FDS), the S&P 500 Index has a forward PE ratio of 21. As such, a fast-growing company like Micron should have a higher multiple than that.
However, valuation numbers show that Micron is still valued as a value stock. It has a forward P/E ratio of 16.6, much lower than the technology sector's median of 25. It is also lower than other companies like Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), and Marvell Technology (NASDAQ:MRVL).
The same is true for other valuation multiples. Its forward price-to-earnings-to-growth ratio has dropped to just 0.11, lower than the sector median of 1.43. PEG ratio is often seen as a better metric than PE because it takes into account of a company's growth.
Micron's rule-of-40 metric is also one of the best in the US. It has a forward revenue growth of 198% and a net profit margin of 42%, giving it a metric of 240%.
Still, despite these numbers, the main risk the company faces is a reversal in the memory industry. With the prices rising, there is a risk that companies will boost their production, which may lead to an oversupply in the future.
Image: Shutterstock
Login to comment