Micron Technology Has Everyone Jumping on the Bandwagon
Micron Technology, Inc. (NASDAQ:MU) is still far off from its high of just below $100.00 in early 2000, but the company is delivering impressive results that provided the catalyst for MU stock to trade at a 52-week high of $29.87 on Friday.
If you have a position in Micron stock, it’s time for a celebration. Micron Technology stock is easily outperforming the S&P 500 and NASDAQ.
MU stock is up 175% over the last year, and 32% year-to-date. The stock’s upward push last Friday was driven by massive trading volume that stood at a whopping 74 million shares at 1:00 p.m., well above the three-month daily average of 24.7 million. The big volume during a major up session is viewed as a bullish signal by traders.
But, while the surge in MU stock has been sizzling, the technicals and fundamentals suggest there are more gains on the horizon.
Micron Technology produces memory solutions that are widely used, including DRAM, NAND, and NOR flash. Investors feared that oversupply would pressure prices and margins, but that has not been the case so far.
Just think about all the memory that is found in computers, mobile, storage, networking, and automotive, and it is understandable to see why demand has been strong.
Micron Technology is coming off two straight strong quarters. In the just-released fiscal second quarter results, Micron reported earnings of $0.32 per diluted share, which is $0.04 above the consensus and the first time in the last four quarters that the company was able to turn a profit.
More importantly, Micron managed to deliver strong gross margin expansion to 38.5% in the quarter, which was more than double the comparative quarter in FY16.
Why MU Stock Could Surge to $51
Whether you analyze Micron stock on technicals or fundamentals, all signs point to more gains to come.
On the chart, stock is completing a bullish rounding formation that began after the stock drifted lower from its previous five-year high at around $33.00 in December 2014.
Chart courtesy of StockCharts.com
Micron Technology stock saw the emergence of a bullish golden cross in July 2016, when the stock was trading at around $14.00. This formation occurs when the 50-day moving average (MA) breaks above the 200-day MA, and often signals a bullish rally.
As we move forward, a sustained breakout at the previous five-year high of around $33.00 could be sufficient to elevate the stock toward the $40.00 mark and higher. This represents a potential move of 38% from the current level, and it could go much higher.
So while technicians like the chart, those who seek value will also be pleased. Micron Technology stock trades at a mere 8.25 times its FY18 earnings per share (EPS) and 2.4 times its book value, even after the move.
Even assigning a fair multiple of 15 times, which is well below the 22 times for the S&P 500, MU stock could easily trade higher to $51.00, representing a potential gain of 75%.