Micron stock is extremely cheap despite the ongoing bull run: is it a buy?

Micron stock price continued firing in all cylinders today, May 11, as demand for its products soared. MU jumped by over 6% to $790, continuing an uptrend that started in April last year when it bottomed at $64. Still, despite the surge, there are signs that the company is still a bargain.

Micron stock is still a bargain despite the ongoing rally 

A main concern among investors is that the ongoing Micron stock surge is not sustainable as the company has become severely overvalued.

However, the reality is that multiple metrics suggest that Micron stock is still a bargain despite the ongoing surge. 

For example, SeekingAlpha data suggests that the stock has a forward price-to-earnings (PE) ratio of just 12, much lower than the sector median of 24. It is also a bargain considering that the S&P 500 Index has a metric of 23.

The price-to-earnings ratio has a major limit in that it does not include growth metrics. As such, the forward price-to-earnings-to-growth ratio is often recommended. In this case, the company has a metric of 0.09, which is much lower than the sector median of 1.05.

Another way to estimate whether the Micron stock is a bargain or expensive is Rule-of-40, which looks at a company’s revenue growth and its profit margin. In this case, the company has a forward revenue growth of 90% and a net profit margin of 42%, giving it a multiple of 132%.

Growth momentum is continuing 

The most recent results showed that Micron’s growth continued growing in its second fiscal quarter as demand for its DRAM and NAND memory chips accelerated.

Its revenue jumped to $23.86 billion in the quarter, substantially higher than the $8 billion it made in the same period last year. DRAM revenue soared by 207%, while the NAND segment grew by 169% to $5 billion.

Analysts believe that its growth momentum will continue in the coming years as memory chip prices surge amid the ongoing shortage. 

READ MORE: Micron up 600%, SanDisk up 3,350%: which stock should you buy?

This shortage has pushed prices substantially higher this year and this trend may continue in the foreseeable future as top hyperscalers boost their capital expenditure. The biggest companies plan to spend over $725 billion in capex, with some of these funds going to Micron and other similar companies like Sandisk and SK Hynix. 

Still, the current Micron stock price is much higher than the average estimate among analysts. The average estimate is $573, much lower than where it is today. All analysts tracking the company have a buy rating. 

Micron Technology stock price technical analysis

MU stock chart | Source: TradingView

While the MU stock is cheap fundamentally, technicals are sending some caution. The weekly chart shows that the Relative Strength Index (RSI) has soared to the extreme overbought zone of 85. Other popular oscillators like Stochastic and the Aroon suggest that it has become highly overbought.

The stock has also moved much further away from its historical moving averages. For example, it trades at nearly $800, much higher than the 50-week moving average at $327. 

Therefore, there is a risk that the MU stock price will pull back in the near term as investors start booking profits. If this happens, it may drop to the psychological level at $500 and then bounce back.