Micron (MU): Buy, Sell, or Hold Post Q3 Earnings?

Micron has been on fire lately. In the past six months alone, the company’s stock price has rocketed 179%, setting a new 52-week high of $219.50 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is it too late to buy MU? Find out in our full research report, it’s free for active Edge members.

Why Does MU Stock Spark Debate?

Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE:MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.

Two Things to Like:

1. Long-Term Revenue Growth Shows Strong Momentum

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Micron’s sales grew at a solid 11.8% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

2. Projected Revenue Growth Is Remarkable

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.

Over the next 12 months, sell-side analysts expect Micron’s revenue to rise by 47.2%. While this projection is below its 55.1% annualized growth rate for the past two years, it is eye-popping for a company of its scale and implies the market sees success for its products and services.

One Reason to be Careful:

Mediocre Free Cash Flow Margin Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Micron has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.9%, lousy for a semiconductor business.

Final Judgment

Micron has huge potential even though it has some open questions, and with the recent rally, the stock trades at 13.1× forward P/E (or $219.50 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.

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