Micron Technology (MU) — What's the Value Story?

Micron Technology (MU) stock has fallen by -3.6 % this afternoon. At $49.33 per share, the company is undervalued — but it's essential that potential investors consider the company's mixed growth indicators and exuberant market sentiment before committing.

Micron Technology, Inc. designs, develops, manufactures, and sells memory and storage products worldwide. The large-cap Technology company has 48,000 full time employees and is based in Boise, United States.

MU's P/E Ratio Is Better Than the Sector Average

Compared to the Technology sector's average of 26.5, Micron Technology has a trailing twelve month price to earnings (P/E) ratio of 6.4 and an expected P/E ratio of 15.8. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $7.75 and $3.12 respectively.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Micron Technology's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.

MU Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Micron Technology, the P/B value is 1.1 while the average for the Technology sector is 5.57.

MU Is Generating Cash

Micron Technology has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 11.6%, compared to 8.8% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 922.5% and a coefficient of variability of 66.7%:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2022-08-31 15,181 -12,067 3,114 27.73
2021-08-31 12,468 -10,030 2,438 2837.35
2020-08-31 8,306 -8,223 83 -97.57
2019-08-31 13,189 -9,780 3,409 n/a

Micron Technology's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Micron Technology's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Micron Technology's Gross Margins

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2022-08-31 30,758 16,860 45.18 20.1
2021-08-31 27,705 17,282 37.62 23.06
2020-08-31 21,435 14,883 30.57 -33.14
2019-08-31 23,406 12,704 45.72 n/a

Micron Technology's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2022-08-31 30,758 4,189 31.57 29.65
2021-08-31 27,705 3,676 24.35 70.52
2020-08-31 21,435 3,492 14.28 -54.77
2019-08-31 23,406 3,312 31.57 n/a

Micron Technology's cost of revenue is growing at a rate of 15.2% in contrast to 8.2% for operating expenses. Sales revenues, on the other hand, have experienced a 10.6% growth rate. As a result, the average gross margins growth is 3.3 and the average operating margins growth rate is 15.1, with coefficients of variability of 18.0% and 32.2% respectively.

Micron Technology Benefits From Positive Market Signals

The market sentiment regarding Micron Technology is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $100 to $45. MU is trading -24.47% away from its target price of $65.31. 2.8% of the company's shares are tied to short positions, and 82.2% of the shares are held by institutional investors.

Holder Shares Date Reported Percentage Value
Vanguard Group, Inc. (The) 91,605,706 2022-09-29 8.40% $4,519,367,421.00
Blackrock Inc. 83,297,539 2022-09-29 7.64% $4,109,484,010.00
Capital Research Global Investors 47,470,260 2022-09-29 4.35% $2,341,945,233.00
State Street Corporation 45,472,484 2022-09-29 4.17% $2,243,384,956.00
Sanders Capital, LLC 42,131,053 2022-09-29 3.86% $2,078,535,461.00
Primecap Management Company 40,434,127 2022-09-29 3.71% $1,994,817,618.00
Capital International Investors 22,180,998 2022-09-29 2.03% $1,094,299,516.00
Geode Capital Management, LLC 20,245,373 2022-09-29 1.86% $998,805,458.00
Wellington Management Group, LLP 14,056,218 2022-09-29 1.29% $693,463,502.00
Capital World Investors 13,808,967 2022-09-29 1.27% $681,265,374.00
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.