Micron (NASDAQ:MU) stock has staged a cautious recovery in the last two weeks, moving from a low of $737 to $971, mirroring the performance of other top memory companies. This recovery may continue as key metrics suggest that it has more upside in the coming months.
Micron Revenue Growth is Accelerating
One of the top metrics supporting Micron’s stock performance is that its revenue growth is accelerating. Its last earnings report showed that its revenue jumped by 74% QoQ and 346% YoY to $41 billion. The management hinted that its fourth-quarter revenue will jump to $51 billion.
There is a possibility that its actual revenue figure will be better than expected since the management tends to be highly conservative. Most notably, its top customers like Nvidia, Apple, Google, and Amazon, have all hinted that they would continue their spending.
Also, its top competitors in the HBM industry, like Samsung Electronics and SK Hynix also published strong financial results. Samsung made over 171.5 trillion won ($120 billion) in the last quarter, a 28% QoQ increase, while SK Hynix made 79.32 trillion won ($55.7 billion) in the same period. Therefore, there is a likelihood that Micron’s revenue will surpass $55 billion, while its margins will continue growing.
Micron Valuation is Still Attractive
Further, valuation metrics suggest that Micron is highly undervalued, a notable thing for a company whose growth is soaring. The company trades at a forward price-to-earnings ratio of 13.2, much lower than the S&P 500 Index average of 20. This multiple is also much lower than the five-year average of 74.
The company also has one of the best Rule-of-40 metrics. Its forward revenue growth for the year is 247%, while its net profit margin is 55%, giving it a multiple of 302%. A company is said to be a bargain if the multiple is above 40%.
The cheap valuation reflects investors’ ongoing concerns about the cyclical nature of the memory industry. For one, the three major players in the HBM market are investing heavily in new production capacity.
Micron is developing a major facility in New York, while SK Hynix and Samsung are expanding their manufacturing operations in South Korea. However, these projects will take several years to come online, meaning the industry is unlikely to face a significant supply glut in the near term.
MU Stock Has Formed an Inverted Head-and-Shoulders Pattern
Technicals are also bullish on the MU stock price. It has formed an inverted head-and-shoulders pattern on the four-hour chart. This pattern is made up of an inverted head, two shoulders, and a neckline. The neckline is at $993, slightly above the current price. A clear break above that level will point to more gains, potentially to the all-time high of $1,255.
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