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Is Micron Technology Destined for Greatness?

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Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Micron Technology (NASDAQ: MU  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Micron's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Micron's key statistics:

MU Total Return Price Chart

MU Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(88%) vs. (154%)


Improving EPS



Stock growth (+ 15%) < EPS growth

71.8% vs. (151.4%)


Source: YCharts. * Period begins at end of Q2 (May) 2010.

MU Return on Equity Chart

MU Return on Equity data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Source: YCharts. * Period begins at end of Q2 (May) 2010.

How we got here and where we're going
Things don't look quite so favorable for Micron today. The memory-chip manufacturer musters only one out of seven possible passing grades, and even that single pass was more a technicality than a real improvement. High operational costs, and tepid revenue growth since 2010, have shriveled Micron's net margins, which fell into negative territory some quarters ago. Despite this apparent weakness, Micron's shares have marked a solid comeback over the past three years, in stark contrast to the story its fundamentals can tell. Can this growth be sustainable, or will Micron's weaknesses catch up to it in the end? Let's dig a little deeper to find out.

My fellow Fool Adrian Campos notes that a sharp transition from DRAM to NAND flash memories, along with an extensive price war, has impeded the progress of most dedicated memory-chip makers. According to IC insights, the NAND chip market is now worth $30 billion, although DRAM is still crucial to the PC market. However, weakening PC demand, and slowing smartphone sales, could cripple Micron's long-term revenue and net income growth prospects.

Micron recently completed the acquisition of Japanese memory-maker Elpida, for a "bargain-basement" purchase price of $2.5 billion, which will enable Micron to expand its manufacturing and sales presence in international markets. There's a reason why the price was so cheap: Elpida filed for bankruptcy in 2012 after the price of DDR3 2-gigabit DRAM declined by almost 85%. Micron also announced plans to scut more than 1,000 jobs in an attempt to reduce its operational expenses. My Foolish colleague Selena Maranjian notes that the acquisition of Elpida might provide some lucrative opportunities to expand its memory-chip supply relationship with Apple (NASDAQ: AAPL  ) .

Hedge fund Bridgewater Associates also increased its stake in Micron after the Elpida acquisition, on the expectation of renewed strength in memory-chip prices. However, high-debt levels, fierce competition, and the industry's normal cyclicality may present a threat to Micron's long-term growth prospects. Samsung is already blowing major headwinds in Micron's direction in the smartphone arena, as its longtime frenemy Apple continues to purchase logic processors and memory chips worth more than $10 billion from the South Korean giant each year.

Putting the pieces together
Today, Micron has few of the qualities that make up a great stock; but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

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Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 11, 2013, at 7:51 PM, prginww wrote:

    Another new low water mark for The Motely Fool.

    Where do they get these guys?

    I bought Micron calls early and have made 20 times my money and not even close to being done.

    To talk about Micron as though it is the same pre-Elpida company is ridiculous in the extreme.

    No Pro-Forma has been released, so this author couldn't even guess about the numbers for the combined company.

    Nothing about the 125% increase in the price of DRAM.

    A disgusting attempt at an article.

  • Report this Comment On September 13, 2013, at 11:25 AM, prginww wrote:

    This article should be filed under "conventional wisdom examples". A serious case of rear view mirror driving. Every metric quoted is simply irrelevant to the current state of the industry, which for the first time in Ira history is an oligopoly of 3 major players. MU is the largest merchant, the swing supplier with immense pricing leverage.

    Apple already has swung its NAND business to Elphida and is exiting Samsing as rapidly as possible. With the acquisition MU is guiding toward $3.50 share next Q. Get in this stock while you can! It's going much much higher!

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