Is Micron Technology Significantly Overvalued? A Comprehensive Valuation Analysis

On August 15, 2023, Micron Technology Inc (

MU, Financial) recorded a daily loss of 4.32%, with a 3-month gain of 1.42%. The company reported a Loss Per Share of 2.68. This article seeks to address the question: Is Micron Technology significantly overvalued? Read on for an in-depth valuation analysis of the company.

Introduction to Micron Technology

Micron Technology Inc (

MU, Financial) is one of the world’s largest suppliers of memory chips. Its DRAM and NAND products are found in a diverse range of devices – from PCs and data centers to smartphones and automotive systems. As of August 15, 2023, Micron Technology’s stock was trading at $65.33 per share, significantly higher than its fair value (GF Value) of $42.82. With a market cap of $71.60 billion, the company’s stock seems to be significantly overvalued.

A Closer Look at the GF Value

The GF Value is a proprietary measure that reflects the intrinsic value of a stock. The GF Value Line, visible on our summary page, represents the fair trading value of the stock. This calculation is based on historical trading multiples, an internal adjustment factor from GuruFocus based on past performance and growth, and future business performance estimates.

According to our valuation method, Micron Technology appears to be significantly overvalued. The stock’s price is notably above the GF Value Line, suggesting that its future return may be poor. However, if the price were significantly below the GF Value Line, it could indicate an undervalued stock with potentially high future returns.

Financial Strength of Micron Technology

Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it’s crucial to carefully review a company’s financial strength before buying its stock. Micron Technology’s cash-to-debt ratio of 0.75 is worse than 69.51% of companies in the Semiconductors industry. GuruFocus ranks the overall financial strength of Micron Technology at 6 out of 10, indicating fair financial strength.

Profitability and Growth of Micron Technology

Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Micron Technology has been profitable 9 years over the past 10 years. However, its operating margin of -14.09% is worse than 82.96% of companies in the Semiconductors industry. Despite this, GuruFocus ranks Micron Technology’s profitability as strong.

Growth is a crucial factor in the valuation of a company. Micron Technology’s 3-year average revenue growth rate is worse than 54.39% of companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate is 10.9%, ranking worse than 66.1% of companies in the industry.

ROIC vs WACC

Comparing a company’s return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide insights into its profitability. ROIC measures how efficiently a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to finance its assets. If the ROIC is higher than the WACC, it implies that the company is creating value for shareholders. Over the past 12 months, Micron Technology’s ROIC was -5.52, while its WACC came in at 10.42.

Conclusion

In conclusion, Micron Technology appears to be significantly overvalued. While the company’s financial condition is fair and its profitability is strong, its growth ranks worse than 66.1% of companies in the Semiconductors industry. To gain a deeper understanding of Micron Technology’s stock, you can review its 30-Year Financials here.

For high-quality companies that may deliver above-average returns, check out GuruFocus High Quality Low Capex Screener.