Key Points
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Trading volumes for Micron’s stock have fallen sharply in recent months, suggesting less interest from retail investors.
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Although the business has done exceptionally well in the past year, once the memory shortage ends, the stock could nosedive.
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Earlier in the year, it looked as though Micron Technology (NASDAQ:MU) stock was unstoppable. It was soaring as demand for memory was through the roof, and the company was able to hike prices, benefiting from stronger margins and sky-high demand. Its numbers have been unreal, making it a must-buy for many growth investors.
But in recent months, that hasn’t been the case. Even though the tech stock is trading at a low earnings multiple, investors haven’t been taking the bait. And there could be another indication that the tech stock may have peaked: trading volumes are down significantly.
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Has the interest in Micron faded?
When a stock is a hot buy with retail investors, trading volumes are through the roof, and that can send it to astronomical heights. Micron hit a milestone earlier this year, crossing $1 trillion in market cap. But it’s now below that threshold, trading closer to a market cap of about $940 billion. It’s still massive, but it’s down significantly from the highs it reached during the summer.
A big telltale sign that the stock may have already peaked is its 30-day average trading volume. It’s down significantly. The chart below shows that as it hit its high around late June, volumes were also up considerably.
MU 30-Day Average Daily Volume data by YCharts
Theoretically, news that the memory shortage will last longer than expected could draw interest, potentially give the stock a bigger boost, and attract more investors. However, there have been multiple reports of the shortage lasting for years, and many investors aren’t willing to shake concerns that more supply could come online in the near future, earlier than expected. Or perhaps they simply want to cash out before it’s too late, especially with the stock sitting on massive gains — more than 1,000% in five years.
I wouldn’t buy Micron’s stock, even while it’s trading lower
The risk with volatile and historically cyclical stocks like Micron is that, while they can be hot buys when things are going well and there are shortages, they can quickly become the stocks no one wants to own when the bubble has burst and more supply comes online.
While Micron’s earnings multiple of 11 may look enticingly low, it’s skewed based on recent results which have been incredibly strong. Odds are, those numbers won’t be sustainable over the longer term, and when prices inevitably come down, the stock price could crash even quicker.
With so many growth stocks trading lower these days, there are plenty of good options to pursue that don’t come with nearly as much uncertainty and risk as Micron, which is why I wouldn’t bother with it.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
