This growth stock has potential to beat the market
Micron Technology (MU -2.09%) the stock has largely outperformed the broader market over the past three years, although the memory specialist’s shares have faced bouts of volatility due to changing memory market dynamics which has affected its revenue and earnings growth from time to time.
Ultimately, analysts expect the chipmaker to face tough times as a potential weakness in memory demand could drive down prices and derail the company’s tremendous growth. . Piper Sandler Analyst Harsh Kumar recently downgraded Micron stock to underweight (or sell) from neutral (or hold). It also lowered its price target to $70 from $90.
The analyst cited Micron’s exposure to consumer-centric markets such as personal computers (PCs) and smartphones, where demand could be hit due to weak spending. Kumar is concerned that weak demand will drive dynamic random-access memory (DRAM) prices down, which doesn’t bode well for Micron, as history tells us. Unsurprisingly, investors pressed the panic button after Sandler’s report, and Micron shares plunged.
However, savvy investors may want to use Micron’s latest drop to buy more shares. Let’s see why.
Micron Technology stock is very cheap right now
Micron Technology stock is already trading at Sandler’s price target after its latest decline. Additionally, the company’s shares have fallen nearly 25% this year amid the sell-off in tech stocks. So, it can be said that the headwinds that the investment bank mentioned during Micron’s demotion are already factored into the action.
Additionally, Micron’s sharp decline in 2022 has made the stock very cheap. It trades at just 8.8 times earnings and 2.55 times sales. These multiples are lower than S&P500the price/earnings ratio of 21.7 and the sales multiple of 2.6. For a company that has consistently posted blistering growth over the past several quarters, Micron’s valuation makes buying the stock a no-brainer at this time.
The company had released its results for the second quarter of fiscal 2022 (for the three months ended March 3, 2022) on March 29, reporting a 25% year-over-year increase in revenue to 7 .79 billion dollars. Its adjusted earnings had climbed to $2.14 per share from $0.98 per share a year ago. Consensus estimates call for Micron to maintain momentum in fiscal 2022 and end the year with a 21% increase in revenue and a 57% increase in earnings per share.
Micron is also expected to maintain momentum in fiscal 2023, with another year of revenue growth of more than 20% and a 31% increase in earnings per share. This potential growth could translate into strong stock market gains and help Micron beat the broader market again as it has over the past few years, especially given the lucrative markets it can take advantage of.
Healthy growth in memory demand should be a long-term tailwind
The memory market is driven by multiple growth drivers, ranging from smartphones and data centers to graphics cards and automotive.
For example, the adoption of 5G smartphones creates the need for more memory for storage and computing purposes. Specifically, Micron points out that the DRAM content of 5G smartphones is 50% higher than that of 4G devices. NAND flash storage, on the other hand, also doubles in 5G devices.
Given that 5G smartphone shipments are expected to drop from around 549 million units last year to 1.18 billion units in 2025, it’s hard to see why there would be a slowdown in demand for the deals. of Micron. The mobile business generated nearly a quarter of Micron’s total revenue last quarter, and it appears set for solid long-term growth.
Meanwhile, the Compute and Networking business unit, which is Micron’s largest revenue earner at 44% of the total, has several growth drivers that should help it weather any near-term slowdown in demand for pc. For example, the company’s chips are used in cloud servers and graphics cards, and both markets are set for secular growth.
Sales of graphics cards, for example, are expected to grow at an annual rate of nearly 33% through 2027. Graphics cards now feature DRAM chips capable of processing large volumes of data, which means that the Rapid growth of this market is expected to increase Micron’s addressable revenue opportunities.
All of these growth drivers explain why the global DRAM market is expected to be worth $258 billion in 2030 from $110 billion in 2020, according to third-party estimates. Micron’s strong share in this market and its efforts to strengthen its position here through its product development initiatives should help the chipmaker maintain its tremendous growth for years to come.
It turns out that analysts expect Micron’s earnings to grow nearly 30% annually over the next five years. The company looks capable of hitting that target, so it won’t be surprising to see Micron remain a long-term growth stock and beat the broader market, as it has in the past.