Memory chip manufacturer Micron Technology Inc. (MU, Financial) reported its most recent quarterly results on Thursday after the markets closed. The results beat analyst expectations on revenue and earnings, but shares of the company are down more than 5% since Friday.
The company's stock is still up more than 80% since Aug. 21 and more than 123% since bottoming on March 18. Micron looks relatively overvalued based on its price-earnings ratio of 29.61 when compared to the Peter Lynch fair valuation, as shown in the above chart.
However, the company's performance in its fiscal first quarter of 2021 suggests that there could be room left to run going into the new year.
Recent quarterly results and growth prospects
In the company's fiscal Q1 report, it reported that earnings per share rose by 62.5% year-over-year to $0.78, beating the consensus Wall Street estimate of $0.71. The company's top line also posted a double-digit growth of 12.23% to $5.77 billion. This was also better than the expected revenue of $5.73 billion.
Micron also issued better than expected guidance, with EPS now projected to come in at around $0.68 to $0.82 for the next quarter compared to the Wall Street estimate of $0.63. The company provided revenue guidance in the range of $5.6 billion to $6.0 billion, which is better than the consensus analyst projection of $5.5 billion.
Micron President and CEO Sanjay Mehrotra said that the top-line growth was driven by focused execution and strong end-market demand. Mehrotra said that the company has now taken leadership in both DRAM and NAND technologies. It is now well-positioned to capitalize on strong industry growth, which could support sustainable growth.
"Micron is simultaneously leading on DRAM and NAND technologies, and we are in an excellent position to benefit from accelerating digital transformation of the global economy fueled by AI, 5G, cloud, and the intelligent edge," Mehrotra said in the earnings statement.
According to a research report published by Yole, the NAND technology market is expected to grow at a CAGR of 11% through 2025 while DRAM is seen growing at an equivalent rate of 7% over the same period. The two markets are predicted to reach annual sales of $82 billion and $95 billion, respectively, within the next five years.
Valuation
From a valuation perspective, shares of Micron are valued at a price-earnings ratio of 29.61, which is relatively lower than close peer Advanced Micro Devices Inc's (AMD, Financial) equivalent of 127.83. When we factor in expected earnings growth for the next five years, Micron's PEG ratio of 0.89 easily trumps Advanced Micro Devices' equivalent of 1.17.
Another close competitor, Intel Corp (INTC, Financial), trades at a relatively better trailing 12-month price-earnings ratio of 10.25, but its PEG ratio of 2.27 makes it a less compelling option for investors that target growth stocks.
In summary, Micron Technology appears to be relatively overvalued in the short-term. However, I think the company's growth prospects make it an interesting option for investors.
Disclosure: No positions in the stocks mentioned.
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