Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. To wit, the Micron Technology share price has climbed 92% in five years, easily topping the market return of 57% (ignoring dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 39% in the last year , including dividends .
Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.
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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Micron Technology’s earnings per share are down 30% per year, despite strong share price performance over five years.
This means it’s unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
The modest 0.6% dividend yield is unlikely to be propping up the share price. It is not great to see that revenue has dropped by 2.6% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Micron Technology is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Micron Technology’s TSR for the last 5 years was 95%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Micron Technology shareholders have received a total shareholder return of 39% over the last year. And that does include the dividend. That’s better than the annualised return of 14% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before spending more time on Micron Technology it might be wise to click here to see if insiders have been buying or selling shares.
Of course Micron Technology may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
What are the risks and opportunities for Micron Technology?
Micron Technology, Inc. designs, develops, manufactures, and sells memory and storage products worldwide.
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Rewards
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Earnings are forecast to grow 76.76% per year
Risks
No risks detected for MU from our risks checks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.