Believing that Micron Technology’s (NASDAQ: MU) steeply discounted valuations would lead to a stock rebound is now a false hope. Despite management’s assurance after every quarterly report that business is better than expected, the stock continues to underperform. Will Micron fall to new 52-week lows?
Micron’s five times P/E range has little meaning if prices of DRAM and NAND fall and profit margins erode. TrendForce predicted prices for these components will fall, driven by supply and demand imbalances. Yet there is no evidence that demand is falling. Prices are falling, especially on the NAND side, which could drive demand higher. The consumer and business shift from mechanical hard disks supplied by Seagate (NASDAQ: STX) and Western Digital (NASDAQ: WDC) is in the early innings. As more PCs get fitted with SSDs, Western Digital (which sells SSDs) and Micron will benefit.
Micron’s stock falling to new lows is entirely possible. This is only justified if Micron reports lower sales on weaker prices in the next quarter. For much of this year, management raised its outlook each quarter. Last quarter, it delivered a weaker outlook. Unless trade wars or other external factors are driving demand lower, Micron is still fundamentally trading at a discount relative to its future earnings growth potential.
