Micron PER 3.8 times… Ranked 498th among S&P 500 constituents

The stock price of Micron Technology, an American memory semiconductor company, plummeted, lowering its expected price-to-earnings ratio (PER) for the next 12 months to 3.8 times.

This is the third-lowest level among the S&P 500 index constituents.

Market Watch reported on the 6th (local time) that investors who focus on valuation see Micron's current stock price as ridiculously cheap, while opponents believe that the huge profits will be difficult to sustain.

Wedbush analyst Matt Bryson predicted in a Market Watch interview that Micron will maintain its pricing power and sales will continue to remain solid.

He also added that the company is preparing to return a significant amount to shareholders as restrictions on share buybacks are lifted starting next month.

On the other hand, there is a view that Micron's lower PER is because it reflects concerns about profit sustainability.

“This uncertainty explains why investors are not assigning higher multiples to these stocks,” said Jake Behan, head of capital markets at Direxion.

Hendy Susanto, portfolio manager at Gabelli Fund, said there is a widespread perception among investors who are skeptical or lack confidence in Micron's stock price that the possibility of a memory market downturn is becoming more and more realistic.

In addition, as the Democratic Party won a landslide victory after the U.S. midterm elections, concerns about strengthening regulations on data centers in local communities also increased.

Josh Kaplan, head of research and investment strategy at Market Vector Index, said whether Micron's valuation is cheap depends on whether investors still view the memory industry as cyclical.

Memory semiconductor companies have signed long-term contracts to maintain current prices for a long time.

“The idea that this time will be different is just wishful thinking by investors who bought at the top, who are likely to repeat ‘buying low’ every time the stock falls,” Kaplan said.

He pointed out, “Whether Micron can sustain profit growth depends on the assumption that hyperscalers (large-scale cloud operators) have infinite investment will and are willing to endure a plunge in stock prices and endless surges in bond yields.”

He added, "The evaluation that Micron's stock price is 'cheap' is based on the premise that 'E (earnings)', which is the basis for calculating PER, is accurate," and added, "It is true that Micron's stock price is cheaper than stocks of retailers such as Costco (PER 46 times), but consumer staple companies have low earnings volatility, and in the case of Costco, the risk of permanent capital loss is very low."

On the other hand, Ted Mortenson, Baird's managing director, believes that the memory industry will have a positive impact on stock prices as it has moved away from a cyclical industry and transitioned into a long-term industry.

He cited the fact that Micron is attractive because it acts as a supplier in the United States and that it is traded on the U.S. stock market, not on KOSPI, which is like a casino.

Mortenson believes Micron has a “very stable outlook” until 2029 thanks to the long-term contracts it has signed with its customers.

“When supply and demand reach equilibrium towards the end of the 2020s, Micron will be subject to a higher multiple,” he said. “If you are a long-term investor and pay attention to free cash flow, Micron is in the top five of all technology companies.”