With a market cap of $346.19 billion, NVIDIA Corporation (NVDA) is a prominent player in the semiconductor industry. The stock is currently trading at a rich valuation. NVDA’s forward EV/s of 12.15x is 360.6% higher than the industry average of 2.64x. Its forward P/S of 12.57x is 353.4% higher than the industry average of 2.77x.

On the other hand, Micron Technology, Inc. (MU) designs, manufactures and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit. It has a market capitalization of $61.52 billion.

On September 1, 2022, MU announced its plans to invest approximately $15 billion to construct a new fab for leading-edge memory manufacturing in Boise, Idaho. This will be the first new memory manufacturing fab built in the U.S. in two decades.

On June 30, 2022, Sanjay Mehrotra, MU’s President, and CEO, said, “Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023.”

However, he added, “We are confident about the long-term secular demand for memory and storage and are well positioned to deliver strong cross-cycle financial performance.”

MU has lost 11.9% over the past month, 25.3% over the past year, and 41% year-to-date to close the last trading session at $55.00. However, Wall Street analysts expect the stock to hit $73.57 in the near term, indicating a potential upside of 33.8%.

Here is what could shape MU’s performance in the near term:

Solid Financials

MU’s revenue came in at $8.64 billion for the third quarter that ended June 2, 2022, up 16.4% year-over-year. Its operating income came in at $3 billion, up 67% year-over-year. Moreover, its non-GAAP net income came in at $2.94 billion, up 35.3% year-over-year, while its non-GAAP EPS came in at $2.59, up 37.8% year-over-year.

Attractive Valuations

MU’s forward EV/S of 1.83x is 30.8% lower than the industry average of 2.64x. Moreover, its forward P/S of 1.95x is 29.5% lower than the industry average of 2.77x. Also, MU’s forward EV/EBITDA of 3.32x and forward Price/Cash Flow of 4.17x are lower than the industry averages of 12.30x and 17.24x, respectively.

Robust Profitability Margins

MU’s trailing-12-month EBITDA margin of 55.67% is 326.7% higher than the industry average of 13.05%. Its trailing-12-month net income margin of 30.61% is 616.6% higher than the industry average of 4.27%.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 21.66%, 13.12%, and 15.18%, compared with the respective industry averages of 7.22%, 3.97%, and 2.84%.

POWR Ratings Reflect Promising Outlook

MU has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Value, consistent with its lower-than-industry valuation multiples. The stock has a B grade for Quality, in sync with its higher-than-industry profitability margins.

In the 94-stock Semiconductor & Wireless Chip industry, MU is ranked #30. The industry is rated B.

Click here for the additional POWR Ratings for MU (Growth, Momentum, Stability, and Sentiment). View all the top stocks in the Semiconductor & Wireless Chip industry here.

Bottom Line

Although MU has slumped in price amid the broader market sell-off this year, it holds a significant upside potential. Moreover, its revenue and EPS are expected to increase 11.3% and 35.1% year-over-year to $30.82 billion and $8.19 in 2022, respectively.

Given the stock’s attractive valuations and robust profitability, I think MU might be an ideal addition to your portfolio.

How Does Micron Technology, Inc. (MU) Stack Up Against its Peers?

While MU has an overall POWR Rating of B, one might consider looking at its industry peers, STMicroelectronics N.V. (STM), Broadcom Inc. (AVGO), and United Microelectronics Corporation (UMC), which have an overall A (Strong Buy) rating.

MU shares were trading at $55.36 per share on Thursday afternoon, up $0.36 (+0.65%). Year-to-date, MU has declined -40.37%, versus a -15.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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