Shares of Micron Technology (NASDAQ:MU) have climbed 59% over the last year, but one analyst still sees significant upside.

Rosenblatt Securities analyst Hans Mosesmann has a buy rating on the stock, with a $165 price target. That's 109% above the current quote. Mosesmann's stock ratings have a 71% success rate, according to TipRanks, so his calls are worth digging into.

Let's see what's driving Micron's business to determine whether the stock is worth buying today.

A computer memory chip.

Image source: Getty Images.

Micron is in a strong demand cycle

Micron is one of the leading manufacturers of the dynamic random access memory (DRAM) products used in consumer PCs and mobile devices. Its products are increasingly being used in cloud servers, industrial, and other enterprise applications. DRAM makes up nearly three-quarters of Micron's total revenue. Micron is also a leading supplier of the non-volatile, rewriteable (NAND) storage products used in solid-state drives (SSDs), which make up 24% of the business. 

Micron reported record revenue in the fiscal third quarter, with its top line advancing 36% year over year to $7.4 billion. But the key to Micron's business performance is pricing. It's operating in a niche where only a few manufacturers, most notably Samsung Electronics and SK Hynix, compete to meet the demand in the marketplace. This can sometimes cause swings in pricing when too much supply becomes available, and this situation can pressure profits.  

Micron is currently experiencing an upswing in selling prices, however. In the recent quarter, Micron's gross margin improved significantly year over year, jumping nearly 10 percentage points to 42.1%. This is a result of DRAM average selling prices increasing by 20% quarter-over-quarter, reflecting a strong demand environment. 

During the fiscal Q3 earnings call, CEO Sanjay Mehrotra provided more insights on Micron's near-term outlook for the supply and demand situation. Mehrotra cited "strong demand across almost all end markets," including PC, data center, smartphone, and 5G. Mehrotra said that Micron can't meet current demand in automotive, and also pointed to strong demand in industrial markets.

The semiconductor shortage is causing demand to exceed supply right now, and this could last into calendar year 2022. But even when the supply shortage is eventually resolved, that will push demand up even further, as Mehrotra explained.

For the fiscal fourth quarter, Micron expects revenue to increase sequentially to approximately $8.2 billion, with gross margin reaching 47%, plus or minus 1%. Management didn't provide guidance beyond the next quarter, but it expects pricing to remain tight into calendar year 2022. All of this points to rising demand and improving profitability for Micron's business. 

MU Chart

MU data by YCharts.

The path to a price doubling

The consensus analyst estimate has Micron's gross margin improving from 39% in fiscal 2021 to 50% next year. Based on analyst estimates, this would translate to earnings per share of $5.93 in fiscal 2021, with a significant jump to $11.36 in fiscal 2022.

For Micron's stock price to reach $165, it would have to trade at 14.5 times next year's earnings estimate. That's not asking too much when the stock currently sells for a modest 13.2 times the consensus estimate for fiscal 2021 earnings.

It's also important to know that Micron has met or exceeded the consensus earnings estimate for 12 straight quarters. Plus analyst estimates have been rising recently for revenue and earnings looking out to fiscal 2022 and fiscal 2023. This could mean that investors are still underestimating the strength of the demand trends for Micron's products. 

Keep in mind that Micron has been a volatile stock in the past, but the company has delivered profitable growth, even if it has been lumpy. The stock has delivered a 950% return over the last 10 years, but given the swings in memory pricing that often occur, this is one stock you want to get right when you buy shares. 

Given management's outlook that supply will remain tight into next year, the secular demand trends in 5G wireless and cloud servers, and the stock's low valuation, the chances are good that investors could double their money with this tech stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.