Micron Technology Inc (MU, Financial) experienced a daily gain of 3.2%, bringing its 3-month performance to a loss of -2.31%. Its Loss Per Share stands at 5.34. The question we aim to answer is: Is Micron Technology significantly overvalued? In this article, we delve into a comprehensive valuation analysis of Micron Technology. We invite you to read on and gain valuable insights into the company's value.
Company Introduction
Micron Technology Inc (MU, Financial) is a leading semiconductor company, specializing in memory and storage chips. The majority of its revenue is generated from dynamic random access memory (DRAM), with minor exposure to not-and or NAND flash chips. The company serves a global customer base, supplying chips for data centers, mobile phones, consumer electronics, and industrial and automotive applications.
Comparing Micron Technology's stock price of $69.01 to its GF Value of $47.41, it appears that the company might be significantly overvalued. This comparison sets the stage for a deeper exploration of Micron Technology's value, seamlessly integrating financial assessment with essential company details.
Understanding GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. It is calculated based on:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of business performance.
The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, Micron Technology appears to be significantly overvalued. The stock's fair value is estimated using historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $69.01 per share, Micron Technology has a market cap of $75.80 billion, indicating that the stock is significantly overvalued.
Because Micron Technology is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss to investors. A great way to understand the financial strength of a company is by looking at the cash-to-debt ratio and interest coverage. Micron Technology has a cash-to-debt ratio of 0.69, which is worse than 72.35% of 904 companies in the Semiconductors industry. The overall financial strength of Micron Technology is 6 out of 10, indicating that the financial strength of Micron Technology is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Micron Technology has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $15.50 billion and Loss Per Share of $5.34. Its operating margin is -34.99%, which ranks worse than 90.36% of 954 companies in the Semiconductors industry. Overall, the profitability of Micron Technology is ranked 7 out of 10, indicating fair profitability.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. On the other hand, if a company's revenue and earnings are declining, the value of the company will decrease. Micron Technology's 3-year average revenue growth rate is worse than 87.07% of 874 companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is -33.7%, which ranks worse than 94.83% of 774 companies in the Semiconductors industry.
ROIC vs WACC
Profitability can also be evaluated by comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Micron Technology's ROIC is -10.95 while its WACC came in at 11.36.
Conclusion
In summary, Micron Technology's stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 94.83% of 774 companies in the Semiconductors industry. To learn more about Micron Technology's stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
