Micron Technology, Inc.'s (NASDAQ:MU) Shares Climb 26% But Its Business Is Yet to Catch Up

Simply Wall St · 10/18 10:40

Those holding Micron Technology, Inc. (NASDAQ:MU) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Although its price has surged higher, it's still not a stretch to say that Micron Technology's price-to-sales (or "P/S") ratio of 4.9x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in the United States, where the median P/S ratio is around 4.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Micron Technology

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NasdaqGS:MU Price to Sales Ratio vs Industry October 18th 2024

How Has Micron Technology Performed Recently?

Micron Technology could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Micron Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Micron Technology?

In order to justify its P/S ratio, Micron Technology would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 61% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 9.4% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 21% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 25% per year growth forecast for the broader industry.

In light of this, it's curious that Micron Technology's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Micron Technology's P/S

Micron Technology appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that Micron Technology's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Micron Technology with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).