Micron Technology Inc (MU, Financial) recently recorded a daily gain of 5.12% and a three-month gain of 11.03%. However, with a reported Loss Per Share of 2.68, the question arises: is the stock significantly overvalued? This article seeks to provide an in-depth valuation analysis of Micron Technology. Read on to discover insights that could guide your investment decisions.
Company Overview
Micron Technology Inc, one of the world's largest suppliers of memory chips, specializes in Dynamic Random Access Memory (DRAM) and NAND products tailored for various computing devices. The company's stock is currently priced at $67.67, significantly higher than the GuruFocus fair value estimate of $42.9. This disparity between the stock price and the estimated fair value suggests that Micron Technology may be significantly overvalued.
Understanding the GuruFocus Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line shown on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly surpasses the GF Value Line, it is considered overvalued, indicating a potentially poor future return. Conversely, if the stock price is significantly below the GF Value Line, it is undervalued, suggesting a likely higher future return.
Given the current price of $67.67 per share and a market cap of $74.10 billion, Micron Technology's stock appears to be significantly overvalued according to the GuruFocus Value calculation. Consequently, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before purchasing its shares. Micron Technology's cash-to-debt ratio stands at 0.75, ranking worse than 69.51% of companies in the Semiconductors industry. Based on this, GuruFocus ranks Micron Technology's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Micron Technology has been profitable 9 times over the past 10 years. Over the past twelve months, the company had a revenue of $18.20 billion and a Loss Per Share of $2.68. Its operating margin is -14.09%, ranking worse than 82.96% of companies in the Semiconductors industry. Overall, the profitability of Micron Technology is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. Micron Technology's 3-year average revenue growth rate is worse than 54.39% of companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 10.9%, ranking worse than 66.1% of companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Micron Technology's ROIC was -5.52, while its WACC came in at 10.34.
Conclusion
In conclusion, the stock of Micron Technology appears to be significantly overvalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 66.1% of companies in the Semiconductors industry. For more information about Micron Technology's stock, you can check out its 30-Year Financials here.
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