Micron Technology (MU +0.87%) stock looks incredibly cheap. It’s trading at around 20 times its trailing earnings, while the S&P 500 average is far higher at a multiple of 26.
However, it’s not often as simple as looking at earnings multiples to assess whether a stock is a good buy or not. Some stocks, such as Tesla and Palantir Technologies, trade at exceptionally high earnings multiples due to their exciting future growth prospects. Others, however, may trade at discounts due to uncertainty or risk.
It appears Micron falls into the latter category. For investors, the big uncertainty relates to the supply shortage in memory and storage products. The key question investors may be wondering is: how long will it last?
Image source: Getty Images.
More supply is coming, but it could take years before the shortage is over
South Korean memory company SK Hynix recently announced plans to invest more than $38 billion in new facilities, and that appeared to weigh on Micron’s stock, raising fears that more supply will be available in the future. The factories will take years to build, however. In the short term, the shortage is likely to persist, allowing Micron and other memory companies to charge high prices for their products.
That being said, in a year or two, as more supply becomes available, the days of demand plus price increases resulting in significant growth for Micron may be coming to an end. And many forward-thinking investors may be opting to sell now while the stock’s price remains high. Micron, while it may not appear expensive from an earnings-valuation perspective, is still sitting on some lofty gains: over the past 12 months, it’s up around 600%.
Today’s Change
(0.87%) $7.52
Current Price
$868.52
Key Data Points
Market Cap
Day’s Range
$844.62 – $879.00
52wk Range
$113.46 – $1255.00
Volume
29.4M
Avg Vol
51.8M
Gross Margin
72.60%
Dividend Yield
0.06%
Is Micron’s stock a good buy right now?
There’s still plenty more growth on the horizon for Micron. The good news is that it may continue to generate terrific results as companies invest heavily in artificial intelligence. But with how quickly things can change in the tech sector, Micron may be an investment that investors need to keep a close eye on, since its valuation depends heavily on what the outlook is for the supply shortage; if there are indications that it may be coming to an end earlier than expected, it may be time to sell, as the stock could end up going lower.
For now, that doesn’t appear to be the case. Micron may still have more room to rise this year, but it’s a stock investors can’t simply buy and forget about, as it has been highly volatile, and that may not change anytime soon.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.
