Top reasons why Micron stock is about to stage a strong comeback

Micron stock price has slumped into a bear market, moving from the year-to-date high of $1,255 in June to the current $940. This retreat has mirrored the performance of other memory companies in the United States, South Korea, and Japan. Still, there are some potential reasons why the stock may rebound in the near term.

Top analysts are optimistic about Micron stock

One main reason why the Micron stock may restart its bull run is that most analysts tracking the company are bullish on it. New Street Research upgraded the stock target to $1,250, up by nearly 35% from the current level.

DA Davidson boosted its target from $1,500 to $2,000, while Needham analysts hiked its target from $1,550 to $1,650. Wolfe Research, Raymond James, and Royal Bank of Canada have targets of $1,500. In total, the consensus target for the MU stock is $1,260, up substantially from the current $940.

There are reasons why the stock has more upside in the coming months. One of the most bullish cases is that its growth is accelerating. Its recent results showed that the company’s revenue jumped to $41.5 billion, up by 74% from the previous quarter and 346% from the same period last year.

Most notably, the management expects the growth to continue, with the fourth-quarter revenue coming in at $50 billion. Historically, the company’s revenue tends to be better than estimates, meaning that the real figure will come in at over $55 billion. Its gross and net profit margins have jumped to 85% and 56%, respectively.

A good example of this is that its top competitors, including SK Hynix and Samsung Electronics, published strong financial results. Also, the top clients like Apple, Google, and Microsoft published strong numbers and hinted that they will continue spending. In total, the top companies in the US plan to spend over $700 billion this year.

MU is highly undervalued

A company that is seeing strong revenue and profit growth should have a higher valuation multiple than the broader market. In this case, the S&P 500 Index has a forward price-to-earnings ratio of 20.

Micron, on the other hand, has a forward multiple of 12.8, which is much lower than the technology sector’s average of 23. The metric is also much lower than the five-year average of 73.

The company also has a forward PEG ratio of 0.07, which also lower than the sector median of 0.70. Meanwhile, by adding its revenue growth and profit margin, the company has a Rule-of-40 metric of over 140%.

These numbers are a sign that investors are concerned about the cyclical nature of the memory industry. In the past, moments of booms are normally followed by periods of busts, such as in 2023 when its revenue plunged by nearly half.

MU stock chart | Source: TradingView

Technicals suggest that the MU stock has more upside to go in the coming days. It has held steady above the 50-day Exponential Moving Average (EMA).

A closer look at the chart shows that it has formed an inverted head-and-shoulders pattern, a common bullish reversal sign. It is now in the process of forming the right shoulder section.

The Relative Strength Index (RSI) has moved above the neutral level of 50 and is pointing upwards. Therefore, the most likely scenario is that the stock continues rising as bulls target the year-to-date high of $1,256.