Micron stock is extremely cheap as megaphone points to a rally

Micron stock price popped to above $400, its highest point since March 24, up sharply from the year-to-date low of $315.

This rebound may continue in the near term, helped by a giant megaphone chart pattern as the valuation multiples tumble.

Micron stock price has formed a giant megaphone pattern 

The daily timeframe chart shows that the MU stock has rebounded in the past few days, moving from a low of $314 on March 31 to the current $406.

It has jumped above the Top of the Trading Range of the Murrey Math Lines tool at $406.

It has also remained above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls remain in control.

Most importantly, the stock has formed a giant megaphone chart pattern, which is a common bullish continuation sign in technical analysis.

This pattern is made up of an ascending triangle, which, in this case, connects the highest swings since January this year. Its lower side connects the lowest levels since January 22nd.

Therefore, the most likely scenario is where the stock continues rising as bulls target the all-time high of $468, its highest point in March this year.

A move above that level will point to more gains, potentially to the extreme overshoot level of $562, up by nearly 40% above the current level.

The bullish Micron share price will become invalid if it drops below the 100-day moving average at $343.

MU stock chart | Source: TradingView 

Micron is trading as a value stock 

A closer look at its fundamentals shows that Micron, one of the fastest-growing companies in the US, is now trading as a value stock.

Data shows that the forward price-to-earnings ratio has dropped to 6.52, which is lower than the sector median of 21. Its multiple is much lower than the five-year average of 74.

The forward GAAP price-to-earnings ratio has slipped to 6.55, which is also lower than the five-year average of 28.

Its forward PEG ratio, which is a modified version of a PE ratio that includes its growth, has slumped to 0.05, also lower than the sector median of 1.32.

Meanwhile, the rule-of-40 multiple, which is mostly used to value software companies, shows that it is one of the top bargains in the US.

Its forward revenue growth is 87%, while the net income margin is 41%, giving it a multiple of 128%. 

These metrics come despite the fact that Micron is one of the fastest-growing companies in the world as demand for memory chips has continued.

The most recent results showed that Micron’s revenue jumped by 198% YoY to over $23.9 billion, while its DRAM revenue rose to $18.8 billion. Its NAND revenue rose to over $5 billion in the quarter.

At the same time, analysts expect the upcoming data to show that its revenue will come in at $33.38 billion, up by 258% YoY.

Also, the annual revenue is expected to be $108 billion, followed by $165 billion in the following year.

Therefore, the company’s main risk is that analysts are concerned about the falling DRAM memory chips prices, which is a sign that the supply shortage is fading. 

However, some analysts believe that prices will continue rising amid the ongoing data centre build-up.

For example, a report showed that DRAM prices will rise by 63% in the second quarter, while NAND will soar by 75%.

This means that Micron’s business continues to do well in the coming months as demand and memory chip prices continue rising.