Micron (MU  ) shares were lower following its fiscal fourth-quarter earnings due to weaker than expected guidance. The actual earnings report was quite impressive as the company doubled profits and increased sales by $1 billion. Micron benefitted from the increased demand with the coronavirus leading people to work from home which resulted in companies increasing spending on IT, cloud computing, and servers, while people had to upgrade their technology at home.

Inside the Numbers

The initial reaction was a pop higher in the stock price, however, this abated as it guided earnings between $0.40 and $0.55 per share while analysts were expecting $0.66 per share. Guidance for revenue was also slightly softer as analysts were expecting $5.3 billion in revenue while the company projects $5 billion.

Another headwind is that Micron is currently not allowed to sell to Huawei which is one of its largest customers. This is due to an order from the Trump administration which blocked any US-based chipmaker from selling to Huawei due to espionage concerns. In the last quarter, Huawei accounted for 10% of sales.

Micron primarily makes DRAM chips which are used in PCs and servers and NAND chips which are used in flash memory devices like cameras, phones, and USB drives. DRAM makes up 72% of Micron's revenue, while NAND accounts for the rest. Micron is anticipating a weak pricing environment for both chips due to increased production and lower demand.

For the quarter, Micron earned $988 million which was 76% higher than last year and above expectations of $735 million. Revenue increased to $6.1 billion from $4.9 billion which also topped consensus expectations. It attributed the beat to strong demand for servers, PCs, and gaming consoles.

Stock Price Outlook

On a year to date basis, Micron has lagged the broader market with a 12% loss vs the S&P 500's (SPY  ) 4% gain. Interestingly, Micron has not topped its June high, while the semiconductors Index is more than 10% above its June high.

This relative weakness is puzzling given that Micron has posted such strong growth in terms of earnings and revenue. Someone who was bullish on Micron and believed that it would post impressive results would have been correct but not made much money.

One interpretation is that the market priced in this performance and is now pricing in a downcycle for memory chip prices as so much demand has been pulled forward. Currently, Micron looks very attractive on a value basis with a forward P/E of 7.8. This makes it a value trap that investors should steer clear of in the next, few months.