Memory chip giant Micron Technology (NASDAQ:MU) reported results for the third quarter of 2018 Wednesday night. The company exceeded Wall Street's expectations and share prices jumped as much as 5% higher Thursday morning. Here's how and why the stock still looks downright cheap even after this jump.

Micron's quarter by the numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Change

Revenue

$7.80 billion

$5.57 billion

40%

GAAP Net Income

$3.95 billion

$1.96 billion

101%

Adjusted Earnings per Diluted Share

$3.15

$1.62

94%

Data source: Micron Technology.

The analyst earnings consensus stopped at $3.12 per share and your average Wall Street firm would have settled for top-line sales near $7.75 billion.

Across the first three quarters of fiscal year 2018, Micron nearly doubled its capital expenses over the same period in 2017. In other words, the company is investing its recent windfalls into business improvements for the long run. Most of these infrastructure costs were related to new or expanded clean-room manufacturing facilities in Singapore and Hiroshima, and these efforts will continue across the fourth quarter into 2019.

Despite these rising capital expenses, free cash flow in the last three quarters more than quadrupled to $5.45 billion.

A woman spreading her hands in a wow gesture over her laptop as she lays in a field.

Image source: Getty Images.

Pricing power

Whether you're looking at sequential trends or year-over-year comparisons, Micron's profit margins are on the rise. Coupled with strong revenue growth, bottom-line profits are skyrocketing. This is simply a good time to be in the memory chip business, mostly thanks to a solid market environment where chip prices aren't just stable -- they are rising.

Average selling prices for Micron's DRAM chips increased by mid-to-high single-digit percentages in the third quarter, boosted by a richer product mix and generally broad demand. NAND chips saw similar pricing power, citing richer product mixes again. In particular, Micron is finding plenty of takers for its mobile eMCP solutions. These compact, low-power memory chips are aimed directly at the Internet of Things market, but high-end smartphones can also benefit from the same attributes of the eMCP product line.

Strong pricing trends is always music to a Micron investor's ears. Keep in mind that average selling prices used to be expected to trend downward over time with the occasional bout of violent price wars driving them even lower. That's not what's going on here anymore, which takes a lot of risk out of owning Micron shares for the long haul.

You should buy Micron at these prices

Micron shares rose as much as 4.9% on Thursday morning. The stock has doubled in 52 weeks and now trades near 18-year highs, dating all the way back to the dot-com boom.

But the stock remains incredibly affordable. You can pick up Micron shares today for the low price of 10 times trailing free cash flow or 5.8 times trailing earnings. The company is putting its cash flow to good use, paying down 24% of its long-term debt during the third quarter. Micron is also setting up a $10 billion share buyback program to squeeze some shareholder value out of deep-discount stock prices.

Anders Bylund owns shares of Micron Technology. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.