Zhitong Finance APP has learned that Micron Technology (MU.US) will announce its first quarter financial report for fiscal year 2022 on December 20. It is reported that the stock price has risen sharply since mid-October due to changes in market sentiment. Analysts now expect the memory market to remain healthy, driven by strong sales of personal computers (PCs) and servers. Previously, the market believed that memory demand would decline, leading to oversupply and a collapse in memory prices, which would harm Micron.
This is a notable turnaround for Micron, considering its stock price has been hammered for much of 2021. In addition, Micron expects memory demand to remain strong in the long term, prompting the company to invest $150 billion over the next 10 years to enhance its production capabilities and research and development. The move, coupled with optimism in the market, sent Micron's stock price soaring. However, concerns about the health of the memory market may still cause Micron's stock price to fall again.
Figure 1
As Micron releases its latest earnings report, investors may be wondering whether to sell the stock to avoid any potential losses or buy before the stock price rises. This article will discuss the above two options and help investors make the right choice after the release of Micron's financial report.
Reasons for selling: The DRAM market will face difficult times due to weak demand
TrendForce said that due to slowing procurement and oversupply, declining demand in the PC, server, mobile device, consumer and graphics card markets will lead to DRAM (dynamic Random Access Memory) pricing is weak. It is estimated that DRAM prices may fall by 3% to 8% in the current quarter compared with the previous quarter, and then fall more significantly by 8% to 13% in the first quarter of 2022. In contrast, DRAM prices reportedly increased by 3% to 8% quarter-on-quarter in the third quarter of 2021.
This is bad news for Micron Technology. It is understood that in the fourth quarter of fiscal year 2021, Micron's DRAM revenue increased by 39% year-on-year to US$6.1 billion. For the full fiscal year, Micron's DRAM business revenue grew 38% to $20 billion, accounting for 72% of its annual revenue. As this area has been the driving force behind its growth, a sharp drop in DRAM prices could seriously hurt the company.
Because of this, investors worried about the company's near-term prospects may be selling Micron shares after its recent rebound. As shown in Figure 2, Micron Technology's stock price has performed poorly for most of the year, and the current rebound in the stock price has put it in an upward trend.
Figure 2
Reasons to buy: Micron Technology’s Q1 performance guidance shows that the company will not lose growth momentum
Micron Technology’s release of performance guidance for Q1 of fiscal 2022 shows that the company’s situation has improved significantly compared with the previous year. It is reported that the company expects Q1 adjusted earnings per share to be US$2.10, compared with only US$0.78 per share in the same period last year; revenue is expected to be US$7.65 billion, which is expected to increase by 32% year-on-year from US$5.77 billion in the same period last year; non- GAAP gross margin is expected to be 47%.
It’s worth noting that the company’s latest financial results cover the three months from September to November, so any weakness in DRAM prices will be reflected in the company’s results. However, the guidance suggests that prices will continue to remain strong, and recent Wall Street chatter suggests that demand in the PC, server and smartphone markets will remain strong next year.
Analysts estimate that Micron Technology's revenue may increase by 15% in fiscal 2022 and 16% in fiscal 2023; earnings are expected to increase by 45% in fiscal 2022 and 24% in fiscal 2023. In addition, considering the growth in memory demand in the next few years, Micron Technology's expectation of profit growth of 22% in the next five years is not surprising. In terms of valuation, the stock's current expected price-to-earnings ratio is less than 10 times, which is far lower than the 22 times expected price-to-earnings ratio of the S&P 500 Index.
Therefore, Micron Technology is a growth stock that remains attractively valued, which is why investors bought in ahead of the company's latest earnings report.
