Micron stock continued its strong uptrend today, reaching an all-time high as the equity market rally accelerated. MU jumped to $1,094, crossing the important milestone of $1,088, the previous all-time high. It has jumped by 810% over the last 12 months, with its market cap now exceeding $1.2 trillion.
Valuation and Growth Metrics Point to More Micron Stock Surge
Although the MU stock price has surged this year, a combination of revenue and profitability growth, coupled with its valuation metrics, suggests it has more upside over time.
The most recent numbers showed that Micron’s revenue growth has surged, and analysts believe it has more room to grow as memory demand jumps. This demand has led to a major shortage, pushing companies to hike prices.
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These numbers revealed that its revenue surged by 75% in the second quarter to $23.6 billion. It rose by 196% YoY, its fastest growth rate ever. This growth was driven by its DRAM business, which generated $18.8 billion in revenue during the quarter.
Most importantly, analysts are optimistic that its revenue growth will continue in the foreseeable future. For example, they expect that its revenue will grow by 200% this year to $112 billion. It will then soar by 65% next year to $185 billion.
Also, the view is that the earnings per share will jump from $8.30 last year to $60.14 this year and $113 in the following year. This makes it one of the fastest-growing companies in the US.
Despite these stellar multiples, the company still trades at a bargain price. For example, the non-GAAP forward PE ratio is 16, much lower than its five-year average of 74. It is also lower than those of the S&P 500 Index and Nvidia, suggesting the stock has more upside.
MU Stock Faces Some Major Risks
Micron’s growth is expected to grow as companies continue investing in the data center space. Despite all this, some potential risks will derail its surge.
One of these risks is the high competitiveness of the DRAM industry. It is mostly dominated by an oligopoly of three companies: Micron, SK Hynix, and Samsung Electronics.
The risk is that these companies will continue boosting their production, which may lead to an oversupply over time. For example, Micron is working on a $100 billion megafab in New York that will be the largest in the US.
A surge in production will lead to higher inventories and lower chip prices, derailing its growth.
The other key risk is that Micron is trading above the average analyst estimate. Its current price of $1,088 is higher than the average estimate of $866. This is a sign that some analysts believe that the rally has become overextended.
Technicals also suggest that the MU stock may undergo mean reversion. This is a situation in which an asset retreats to align with its historical averages. In this case, its 100-day moving average is at $600, while it has jumped to $1,087.
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