Micron (Nasdaq: MU) has been one of the best-performing stocks over multiple timeframes. Unlike many big gainers, it's managed to continue trending higher in recent weeks when many of the big winners from 2020 have seen corrections of 30 to 50%.
This is due to a combination of factors including the supply shortage in semiconductors, increasing demand due to emerging technologies like AI, VR, and cloud computing which require more computer chips, and Micron's consistency in beating consensus expectations for earnings.
Inside the Numbers
In Q4, Micron reported revenue of $6.2 billion which was 30% higher than last year. Earnings per share came in at $0.98 per share. The company also issued a bullish forecast due to expectations of continued strength in semiconductor demand. The company expects between $6.7 billion and $7.3 billion of revenue in 2021. Analysts were looking for an average of $6.8 billion.
The company's memory chips are used in PCs and smartphones which have been strong in 2020 due to people staying at home during the pandemic and increasing spending on technology items. 2021 sales are also expected to be strong due to the economy recovering and stimulus payments.
In addition, all sorts of items are now equipped with computer chips and connected to the Internet which has increased the demand for all types of chips including memory. Examples include cars, refrigerators, and sensors. Micron, along with its competitors are increasing production to take advantage of these conditions.
Stock Price Outlook
Stock prices can go up either due to multiple expansion or earnings growth or a combination of both. It's interesting that Micron's gains can largely be attributed to earnings growth rather than multiple growth. This is evident with its forward PE of 8.7 which is significantly cheaper than the S&P 500 (NYSE: SPY) at 23. Further, the company should experience increased margins given the strong demand and supply crunch for certain types of memory.
Overall, Micron has been one of the best stocks of the previous bull market and looks likely to keep continuing higher. The stock is priced as if it's at the top of the cycle, yet there are many signs that this is the beginning of the cycle given that companies' and consumers' tech spending is expected to remain strong in 2021 and 2022.