Micron Technology, Inc. (MU): How To Play the Growing Demand for Flash Memory

Since Micron lost money last year and is projected to lose money this year, a traditional valuation method such as TTM or forward P/E analysis is meaningless.  Whenever you buy a company that is losing money in the hopes that things will turn around, you are taking a gamble.  Micron is expected to lose 54 cents per share this year; however in fiscal years 2014 and 2015, the company is expected to earn 53 cents and 83 cents per share, respectively.

In other words, if all goes according to plan, and demand for flash memory heats up with increasing tablet and smartphone sales, you could be buying the stock at just 9.5 times 2015’s earnings, when it could be growing at a very high rate.  If things start going poorly for Micron, however, the stock could take a turn for the worse fast, and in fact the stock was trading under $4 as recently as 2011 on bad news.

As far as competitors go, there are few publicly traded companies that are similar to Micron (most are privately held), but one that is pretty close for comparative reasons is SanDisk Corporation (NASDAQ:SNDK).

SanDisk makes a variety of flash storage card products, such as the tiny memory cards used in digital cameras and smartphones.  SanDisk trades at 14 times forward earnings of $3.63 per share, which are expected to grow by 10.5% and 13% over the next two years, respectively.

Additionally, SanDisk has a net cash position (cash minus debt) of over $16 per share  Subtracting this out of their current share price of just over $50 gives an even better forward P/E ratio of 9.5.  As far as the flash memory sector goes, SanDisk looks not only very attractively valued, but a much safer play based on its stable record of earnings growth and adding to its cash pile.

In conclusion, while Micron may look like a very cheap stock right now, it needs to get a whole lot cheaper.  I would personally wait until the company’s earnings release in mid-March before making a move, but I do have a feeling that Micron’s turnaround will be a success.  If you are bullish on the use of flash and solid-state memory devices over the next few years, as I am, this is one gamble that could pay off big time, as long as your entry price is a little better.

The article How To Play the Growing Demand for Flash Memory originally appeared on Fool.com.

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