I wanted to start 2019 with a better portfolio, and what better way to buy another great stock to add to her?
It’s been quite awhile since I did an individual analysis on a stock, considering that I spent a lot of posts recently on self reflection and progress. I should do it more often though, because more often than not my readers or the comments are able to provide very good insight on my personal opinions, and this blog is pretty much the only avenue that I can reach out to similar investors.
Since we’re on this topic, let me pull over at the road shoulder and have the opportunity to update you on my followers. I almost forgot that I set some goals for my alternate personality, Miss Niao, in 2018. And if I do recall correctly, it is to achieve 100 followers on this blog right here.
I didn’t achieve this goal, but not a shot too far. Thank you if you’re reading right now, the 94 followers who hit the subscribe button and placing your trust in me in delivering value to your life.
If I were to go a step further and act like a sale agent, providing you more numbers to convince you to also subscribe to my blog, I have another 80 followers on my StocksCafe profile! Ignoring the fact that not all of them are unique (since my blog posts are also published there), let’s take the total follower count to 174.
Thank you everyone, for your great support. :’)
OK so back to Micron.
As you might have been an avid follower for my blog (wink wink), you would have known that I bought my very first overseas stock in British American Tobacco (LSE:BATS), exposing my portfolio for the first time to currency fluctuations.
Unfortunately, I can’t place this stock in StocksCafe as Evan hasn’t integrated the LSE yet, but what I can do is add my newest stock, Micron (NYSE:MU) to my portfolio and create some stats for it.
Micron has been in my watchlist since the second half of 2018, and I finally made a trade for a cool $33.088 per share in the beginning of 2019.
Here’s a quick introductory to what Micron is up to on Earth.
Data is the New Currency
What products do Micron make?
Based on the engineering nerd jargon, Micron produces mainly DRAM, NAND, NOR devices and also the latest about-to-acquire product line, 3D XPoint which was a joint venture between Intel and Micron initially.
Based on legible English for the general public, Micron produces (very) miniature thumbdrives that can be used in your phones, cars, laptops, etc.
As the world is progressing to the processing of Big Data, Micron comes into play by providing the memory space to store more information. Think of how you have to constantly upgrade your phone’s memory storage from 32GB to 128GB just so that you can access your photos and videos anywhere and anytime.
Business Stuff and Stats
Pulling out some numbers from my stock screener for the year 2018:
- Gross Profit Margin: 58.87%
- Net Profit Margin: 46.51%
- CAGR (Revenue): 16.75%
- Current Ratio: 2.78
- Cash Ratio: 1.18
- ROE: 43.77%
- ROA: 32.58%
- PE: 2.694
- PE (3-year average): 6
- Dividend yield: N/A
Are these numbers exceptionally excellent for the typical investor? Now, I’ll put the basic analyses and valuations aside but as you can see from the figures above, it would be hard to find a reason to say no.
As part of the semiconductor industry, Micron’s earnings isn’t spared by the overall market demand/supply with its business being cyclical natured. Thus, it isn’t surprising to see that they have reported negative earnings in AY2016 due to the oversupply of DRAMs.
Being third in the pie for DRAMs, this puts Micron at a rather competitive pedestal, being able to have a small say in determining prices as compared to the Korean giants, Samsung and Hynix. To keep up with them, they will have to continue to burn money in R&D to continue innovating their products and improving their technologies.
When will a breakthrough innovation come along? That is something that we cannot bet on, although high hopes are now on 3D Xpoint. A patented design will definitely widen their competitive moat and hopefully, also widen their slice of the pie.
But sometimes, it might be better to do what you’re good at all along. Boring doesn’t mean bad, sometimes…
What I’m Looking For
The question here really, I believe, is how strong Micron’s balance sheet will to be able to sustain the years where the same oversupply situation or other scenarios where negative earnings will be reported again.
With (extremely) high profit margins and enough cash on hand ALONE to clear their total current liabilities, this shows that their financial position would be quite resilient even if receivables were to be reduced.
Total assets have also been growing year-on-year, though mostly is attributed to their PP&E. This is in line in growing their NAV while keeping their total liabilities at almost the same figures every year.
I am not too worried about any news release regarding the prediction of lower earnings.
Boo! No Dividends?
As the experienced and savvy income investors might have noticed, Micron does not distribute dividends but instead bring value to investors by performing sharebuy using any FCF from the financial year. It is no wonder that this strategy can bring the P/E to as low as a ratio of 2! Perhaps this has also made the shares even more valuable with my average entry price of $33.088.
Since Micron does have this program though, it also means that they have the privilege of extra cash. They could probably consider eventually, if the cash will be used for other emergencies should they arise.
If at any point Micron chooses to stop this program and give out dividends instead, it will still not be bad news at all.
So What Will I Do?
Bought some shares at $33.088 per share on average. Target price $60~$92.
Thanks for reading!
Miss Niao xoxo