>When MU was trading at $90 it was overvalued roughly ten fold.
Tom,
By what calculation was it overvalued at 10x? I'm willing to believe it was somewhat overvalued, but 10x sounds more than a bit on the high side.
--------------------------------
In a quote from an article today ( fnews.yahoo.com ):
"Rambus products are hitting the assembly line just when the memory industry awakens from a three-year slump. Memory-chip sales will grow to $45.5 billion in four years from $13 billion this year, according to Cahners In-Stat Group."
--------------------------------
Micron's sales for the year ending Sept. 3, 1998 were around $3 billion. Current analyst estimates place their market share around 25% (which is consistent with a market that is about $13 billion and sales as of a few months ago that were about $3 billion.)
If they are only able to keep that market share--and based on their agressive operating strategy and acquisition mentality, I'd say that conservatively they will at least hold that share--then that implies sales in four years of $11.3 billion. A 39% CAGR (compound annual growth rate) in revenues over the next four years feels fairly healthy to me and consistent with many analysts' predictions that we are headed into another cyclical upswing.
If the company stays at roughly 3.3x price to sales, that implies a stock price around 150 (for a market cap of around $37 billion.)
So, just to play with some numbers. Over the last 10 years, the worst, best, and overall average (i.e., 10 year average) net income %age Micron has had has been: -7.8%, 28.6%, and 12.5%. Multiplying that out times 11 billion yields:
-876.79 (-7.80%)
1,412.84 (12.50%)
3,230.38 (28.60%)
Assuming Micron is making money, then having a market cap of $37 billion with net income ranging from $1.5 to 3.0 billion does not sound patently ridiculous.
Regards,
Jeff |
