Micron Technology (MU -0.34%) has been battered in the stock market in 2022, with the chipmaker’s stock prices down 37% so far despite a string of impressive quarterly results and its meteoric growth.
Investors, however, are hoping for a turnaround from the memory specialist when it releases its third-quarter fiscal 2022 earnings report on Thursday, June 30. But will Micron be able to deliver better than expected results? More importantly, will Micron’s guidance be strong enough to trigger a stock rally? Or should investors sell Micron shares ahead of its earnings report to avoid further losses? Let’s find out.
Reasons to Buy Micron Technology Stock Before Earnings
There are two reasons why buying Micron stock seems like a good idea before its earnings are released.
First, Micron’s stock is very cheap right now. It trades at just seven times trailing earnings and 4.8 times forward earnings. These multiples are much lower than S&P500of 20. So a strong set of results from Micron could send the stock soaring and it may not be available at such a cheap multiple after its earnings report.
Second, it should be noted that Micron has significantly exceeded Wall Street earnings forecasts in each of the past four quarters. Strong demand for Micron’s memory chips helped the company deliver a strong guidance in March that turned out to be better than analysts were looking for. It could happen again.
Micron expects revenue of $8.7 billion and adjusted earnings of $2.46 per share for the fiscal third quarter (which ended June 3), which is consistent with consensus estimates. Those numbers would translate to year-over-year growth of 17% in revenue and 31% in earnings per share. However, it will not be surprising to see Micron posting better numbers, thanks to the strong demand for memory chips in several end markets such as data centers, smartphones, automotive, graphics cards and personal computers (PC ).
Micron CEO Sanjay Mehrotra outlined the company’s growth drivers during the March earnings conference call, saying, “We expect demand underlying the 2022 schedule to be led by the data center. , continued adoption of 5G smartphones and continued strength in the automotive and industrial markets.”
Micron’s cheap valuation and ability to maintain healthy growth are two reasons investors might want to buy the stock ahead of its earnings release. But a closer look at developments in the memory market indicates that Micron might encounter some near-term headwinds.
Reasons to sell
Micron’s fortune hinges on the price of memory chips, and that’s where things could go wrong for the company when it reports results.
According to market research firm TrendForce, the price of dynamic random-access memory (DRAM) chips fell in the second quarter. Specifically, TrendForce estimates that DRAM prices fell between 0% and 5% in the second quarter of the calendar year due to weak demand for consumer electronics like PCs and smartphones and surging inflation.
The accumulation of inventories due to weak demand should carry over into the third quarter and lead to a greater drop in memory prices. It turns out that DRAM prices could fall between 3% and 8% in Q3 2022. This seems like bad news for Micron, as DRAM chips generated 73% of the company’s revenue in Q2. tax.
History indicates that low memory prices are hurting Micron significantly. So if the reports of low memory prices are indeed true, Micron’s quarterly results and advice might not measure up. Analysts are already anticipating a slowdown in Micron’s growth this quarter. They expect the company to post revenue of $9.45 billion and earnings per share of $2.78, which would translate to 14% year-over-year growth. the other of its turnover and its results.
While these growth rates are respectable given Micron’s cheap valuation, they are down on what the company is expected to achieve in the fiscal third quarter. It’s also worth noting that Micron’s revenue jumped 25% in the fiscal second quarter, while adjusted profit more than doubled year-over-year.
Any sign of Micron’s slowing growth will not be welcomed by investors, which could send the stock tumbling after its terrible stock market performance so far this year. As such, investors could see more turmoil for Micron Technology shares in the near term, which is why they might consider selling those tech stocks before the company releases its results.
Harsh Chauhan has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.