Shares of Micron Technology (MU 6.78%) have been coming under pressure of late. While the company has been generating strong numbers in recent quarters and its valuation is seemingly low with respect to earnings, it's been falling significantly in the past few days.
It's now down close to 30% from its 52-week high and is well below $1,000. Could now be the time to load up on the tech stock?
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Micron's stock has been much more volatile of late
There haven't been any significant developments recently to explain why Micron's stock has been crashing. But the reality is that it's become much more volatile of late, leading to larger, more sudden price swings.
MU 30-Day Rolling Volatility data by YCharts
The chart above shows the stock's annualized standard deviation over the past 30 trading days. As Micron's value has risen sharply in recent months, volatility has become much more extreme. While this can open up opportunities to buy the stock at lower levels and potentially profit from significant gains, it also highlights the risks of owning the stock right now.
NASDAQ: MU
Key Data Points
Is Micron's stock a good buy on the dip?
Given the volatility, investors may be tempted to buy the stock while it's trading lower, in the hopes that it'll bounce back up to the highs it reached last month when it was over $1,200. But there is no guarantee that will happen, and with the stock up more than 200% this year, it's already amassed some significant gains -- many investors may be eager to cash out, and if that happens, that could put more downward pressure on the stock.
While Micron may look cheap on earnings, part of the problem is that the market may struggle to price the stock correctly, given that the business is booming due to a shortage of memory and storage products and has been highly cyclical in the past. If that proves to be the case yet again and demand ends up declining, the stock could be due for a massive crash. Even if that may not happen for a few years, forward-thinking investors may already be pricing in that risk.
Although the stock's forward price-to-earnings multiple of six (which is based on analyst projections) may suggest Micron is incredibly undervalued despite its gains, that doesn't mean that there isn't significant risk with buying the stock today. Micron's volatility suggests this may not be a suitable investment for investors without a high tolerance for risk, and it's definitely not a slam-dunk buy just because it's trading lower than $1,000.
