Go To

Should You Buy $90 Billion Micron?

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

To help you figure this out, today I answer… Should You Buy $90 Billion Micron?

Micron (MU) is one of the worlds leading manufacturers of DRAM and NAND flash memory for PC’s, data centers, smart phones, game consoles, and vehicles.

Its based in Boise Idaho.  It has a $90.5 billion market cap. And it earns large profits… Which is reason #1 to consider buying its stock.

Micron Earns Large Profits

Over the last decade it earned an average operating income margin of 16.6% per year.  

I look for anything above 10% consistently. 

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 7.5% per year on average.  

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.  If a company surpasses both thresholds it makes it a great Micron earns far higher margins than my minimum thresholds.

These profits also allow it to have ultra low debt numbers as well.

Micron Has Low Debt

As of this writing it has $7.03 billion in cash compared to $7.16 billion in debt.

As a percentage of its balance sheet total liabilities make up 25.7%.

And its debt-to-equity ratio is 0.18.

These are all well below what I look for in an investment, which adds a huge margin of safety to potentially buying Micron stock.

But what about its valuation?  Is it cheap enough to buy? 

Micron IS NOT Cheap

With the markets at or near all-time highs you’d expect a good stock like Micron to be selling at an enormous valuation.

Unfortunately, it is.

As of this writing its P/E is 30.2.

Its P/CF is 11.

Its forward P/E is 19.1.

And its enterprise value to operating income – EV/EBIT is 25.9.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

These show that Micron is overvalued right now.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning it going forward.

With Micron being overvalued, this makes it riskier.  Even with the other wonderful things above.

Conclusion

If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy – consider investing in Micron. But only when its cheaper.

Until then, use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above

Comments are closed.