Micron Technology is one of the largest producer of semiconductors, flash memories and hard disks as well. The company has rolled out some new technologies of late which has affected favorably an improvement in the firm’s earnings thereby pushing the stock towards the highest level for three years. Since then, there has been quite a sharp retreat. Having said that, investors could make up their mind whether to invest in the stock right now?

Summary:

• The stock has remained in a strong uptrend for many months
• A current test of a trend line could impact the stock’s future
• As many as 24 brokerage houses recommend buying the stock with the average price target placed at $43.1

Micron Technology is a cyclical company, hence we’re in an expansion phase. It stems from the fact that the firm rolled out new flash memories: DRAM and NAND (these are key components to electronic devices ranging from personal computers to smartphones and large servers designed to process data in a cloud computing). It means higher selling prices and increasing interest on the market. As a result, the company reported a meaningful increase of revenues across almost all its industries. Moreover, there is further potential for Micron Technology to develop itself taking account of expansion in cloud computing industry. The greater expansion of the industry, the higher demand for more efficient servers which use DRAM memory – nowadays, as much as 30% of the company’s sales of such kind of memory is directed to servers. The firm reported $5.56bn of revenues along with $1.62$ of earnings per share (EPS) – both metrics beat market’s expectations.

Micron Technology has experienced a massive increase in revenues recently thanks to a roll-out of new flash memories (DRAM and NAND). Source: Bloomberg

Furthermore, in conjunction with implementation of new products there has been no a rise in costs. Consequently, a trading margin rose more than 9pp. to 48% compared with the same period last year while an operating margin increased 12pp. to 37%. It suggests that the company keeps costs in check in environment of rising prices.

Micron Technology reported a rise in margins across all categories. It’s worth highlighting that the best performing category is a compute and networking unit which seems to have the most exuberant prospects of development. Source: Bloomberg

For all an impressive rally of the stock in recent months, Micron Technology is still relatively cheap. Valuation metrics such as P/E or EV/EBITDA are lower compared with an average for the whole industry. However, it’s worth mentioning that SK Hynix, which has a similar capitalization to Micron, is slightly more attractive from that point of view. 

Micron Technology has still quite attractive valuation. Source: Bloomberg

Majority of brokerage houses have a buying call for the company. As much as 24 out of 28 recommendations suggest buying the stock while remaining 4 opt for holding shares. What’s interesting neither institution recommends selling Micron Technology. Moreover, just a mere 4.9% of shares being in free float have been used to a short selling of late which could be seen as negligible sellers’ activity. On top of that, an average target price is at $43.1 implying more than 44% of a potential profit. 

As much as 24 out of 28 recommendations suggest buying the stock, whereas an average target price is at $43.1 implying more than 44% of a potential profit. Source: Bloomberg

The stock has risen all but 20% since April last year. A rally has been halted in the vicinity of $32.9 – buyers have failed to break this level twice. In effect, there is a possibility of a double top pattern which could ultimately occur on the chart suggesting a continuation of a corrective move after all. Nonetheless, bulls are struggling right now to maintain above an upward trend line which has proved to be a strong support as of yet. What’s more a recent candlestick was marked with a long wick which could indicate an increase of buyers’ activity. If the above-mentioned support line isn’t broken, there could be an interesting buying opportunity with a probable aim placed at around recent highs or higher towards peaks achieved in 2014 close to $36.65. That said, if sellers manage to break the support line, a 150 moving average could constitute another level being worth looking at. 

The stock has experienced quite a noticeable decline lately. However, if the above-mentioned support line isn’t broken, there could be an interesting buying opportunity. Source: xStation5

To sum up, Micron Technology is in an expansion phase thanks to a roll-out of new products. The company operates in a promising industry as there is getting higher demand for newer personal computers, smartphones or servers. What is especially worth stressing, the firm has managed to keep costs in check which has improved its profitability. However, allowing for a technical analysis one could argue that we’re in a watershed – if the above-mentioned support line isn’t broken, there could be an interesting buying opportunity, albeit needless to say that an ongoing corrective move could deepen.