Micron Is Down, Should Investors Step In?
What is the ideal price to pay for Micron, and is Sanjay Mehrotra taking a page out of an old playbook?
You've reached your free article limit
You've read 0 of 1 free Pro articles.
On Thursday, shares of Micron Technology MU were down 7% after the company reported earnings. Does this move present an opportunity for buyers, and if so, what is the right price to buy the stock?
Micron tumbled after reporting earnings per share of 62 cents, trouncing estimates of 51 cents. Revenues, while coming in higher than expected at $6.81 billion, didn’t exactly blow away the estimate of $6.67 billion. Pretty good, but not great.
The issue with Micron lies with the current quarter. Micron’s $1.08 estimate for earnings per share was only slightly higher than Wall Street’s anticipated result of $1.05. The company’s revenue estimate of $7.6 billion was right in line with the Street’s anticipated figure.
Frankly, I don’t believe anything is wrong with Micron. I believe Wall Street analysts, spoiled by outliers like Nvidia NVDA, have created overly aggressive projections. By presenting figures that are close to or in-line with analysts’ estimates, Micron could simply be managing expectations.
Consider this — including Thursday’s selloff, Micron has gained 61% year-to-date. Over the past year, the stock is up 98%, and over the past five years, Micron has climbed 243%.
The stock reached an all-time intraday high of $157.50 on June 18. Since then, Micron has fallen by about 15%. If we practice good risk management, we can buy this stock for a trade or an investment at or near its current price.
The ideal location to buy Micron is in the vicinity of its 50-day moving average (blue), currently near $127. Traders can enter part of the trade at the current price, and add the remaining shares if and when the stock falls to its 50-day MA.
Notice how the price recently bounced twice from that key indicator — once on May 1, and again on May 31 (arrows). It’s possible that an institution is buying dips to the 50-MA, and could do so again.
How should we manage risk on this setup? If the price breaks through the 50-day MA, and especially if that occurs on heavy volume, traders can take a small loss and move on.
If Micron CEO Sanjay Mehrotra is indeed managing investors’ expectations, he’s taking a page out of an old playbook. By lowering the company’s estimates — and by extension, Wall Street’s expectations — Mehotra is setting the company up for an earnings beat in the near future.
In the 1990s, former Cisco System’s CSCO CEO John Chambers was a master of this tactic. Chambers repeatedly lowered the analysts’ bar, and then soared above it. It’s possible that Micron is now employing a similar tactic.
More Investing and Trading
- Cracks in the Facade?
- Silver Catches Fire, What’s Our Next Move?
- The Best and Worst Names in the Energy Sector
At the time of publication, Ponsi was long MU.
