With a $58.13 billion market cap, Micron Technology, Inc. (MU) is a chip-making company that designs, manufactures, and sells storage products globally. It operates through the Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.

Popular chipmaker NVIDIA Corporation (NVDA) provides graphics and Compute & Networking solutions in the United States, Taiwan, China, and internationally. It has a market capitalization of $322.191 billion. The company is credited with the invention of GPUs, which is a cornerstone of modern gaming software.

In a similar fashion, MU offers DRAM products, which are dynamic random access memory semiconductor devices that provide high-speed data retrieval. The devices are used widely in data centers, personal computers, and other devices. 

Recently, MU broke ground for a $15 billion factory in Boise, Idaho. The company also announced another plant to be built in the United States. Once operational, U.S. plants are expected to account for 40% of MU’s DRAM production volume globally, up from 10% at present. The company had previously stated that it would invest $150 billion throughout the decade, which includes funds for research and development.

The stock has declined 18.6% over the past month and 8.3% over the past five days to close its last trading session at $52.69.

Here are the factors that could affect MU’s performance in the near term:

Solid Financials

For the fiscal third quarter that ended June 2, MU’s revenue increased 16.4% year-over-year to $8.64 billion. Non-GAAP operating income rose 33% from the prior-year quarter to $3.14 billion. Non-GAAP net income and non-GAAP EPS improved 35.3% and 37.8% from the same period the prior year to $2.94 billion and $2.59.

Low Valuations

In terms of its forward non-GAAP P/E, MU is trading at 6.39x, 64% lower than the industry average of 17.76x. Its forward EV/EBITDA multiple of 3.20 is 74.6% lower than the industry average of 12.59. In terms of its forward Price/Cash Flow, it is trading at 3.94x, 76.5% lower than the industry average of 16.76x.

Wide Profit Margins

MU’s trailing-12-month EBIT margin and net income margin of 34.51% and 30.61% are 356.9% and 614.4% higher than their respective industry averages of 7.55% and 4.28%.

Its trailing-12-month ROE, ROTC, and ROA of 21.66%, 13.12%, and 15.18% are 197.4%, 230.8%, and 434.9% higher than their respective industry averages of 7.28%, 3.97%, and 2.84%.

POWR Ratings Reflect Promising Prospects

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

MU has a Value grade of A in sync with its low valuations. The stock has a B grade for Quality, consistent with its broad profitability margins.

In the 94-stock Semiconductor & Wireless Chip industry, it is ranked #36. The industry is rated B.

Click here to see 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

MU’s substantial investments and expansionary policies might propel it toward an NVDA-like growth trajectory. And considering its steady financials and wide profit margins, I think the stock might be a solid buy now.

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) and Xperi Holding Corporation (XPER), which have an overall A (Strong Buy) rating.

MU shares were trading at $52.18 per share on Friday morning, down $0.51 (-0.97%). Year-to-date, MU has declined -43.80%, versus a -18.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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