Looking For The Right Time To Buy Micron

Micron (MU) stock is on fire, gaining nearly 55% in the past year on the back of solid financial performance from the company and improving demand prospects for the sector. The stock may be too hot in the short term, but it still offers attractive upside potential in the years ahead.

Solid Performance And Improving Prospects

Even a mediocre company can deliver good numbers when the wind is on its back, but it takes a well-managed business to produce solid earnings and cash flows in times of falling industry demand.

Micron has focused on improving its cost structure and increasing the mix of high-value solutions in its portfolio over the past several years. This has allowed the company to generate 2,000 basis points of EBITDA margin improvement relative to its peers since 2016

The numbers from the most recent quarter confirm that the business remains solid in spite of falling industry revenue. Revenue declined by almost 39% year over year, but the company still retained a healthy 38.2% of revenue as gross profit, while operating profit amounted to 21.1% of sales during the period. Operating cash flow was $2.71 billion, and the company ended the quarter with a net cash position of $3.02 billion.

Management said in the most recent conference call that demand for NAND products is already increasing, and the company is anticipating a recovery in DRAM in the second half of 2019. Inventory levels still remain high, though:

Over the last few months, customer inventory improvements have progressed largely in line with our expectations in most end markets. This reinforces our confidence that bit demand for DRAM will return to healthy year-over-year growth in the second half of calendar 2019. NAND bit demand is also increasing in most markets as elasticity kicks in, in response to price declines over the last year. Even as customer inventory levels of DRAM and NAND improve across most end markets, producer inventory levels are elevated.

Management is always an interested party in these discussions, so we need to take the comments from the management team with a grain of salt. That said, recent research reports from Deutsche Bank and Mizuho are also positive on industry demand prospects over the coming months.

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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MU over the next 72 hours.

Disclaimer: I wrote this article myself, and it expresses my own ...

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Bill Myers 10 months ago Member's comment

Good read. I think a lot of the negative hype surrounding $MU and the #tradewar ware overblown. China makes up a tiny fraction of #Micron's revenue.