(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technology Inc.'s (MU) stock has dropped by more than 20 percent from its May high of around $62.50. Now the stock appears poised to fall 9 percent further from its current price of around $50. The steep drops come ahead of fourth-quarter results on September 20.
Options traders also see Micron declines. They are betting the stock will fall by about 5 percent by September 21, the day after earnings. The number of open puts outweighs the open calls at the $50 strike price.
The technical chart shows the stock in a steep downtrend since peaking in May. Each time the stock has hit the upper range of the downtrend, it has failed to break out and has traded lower. The next level of technical support is around $45.25, a decline of almost 9 percent, from its current price.
The relative strength index also shows weakness. It's trending lower after hitting overbought levels reaching around 80 in March. When the RSI is it a level of 70 or higher, a stock is overbought. With the RSI still showing no divergence from the falling stock price, it suggests momentum is leaving the stock.
Volume also has been falling, which could be a sign of an absence of buyers. Volume levels surged in previous periods when the stock saw significant increases. Recent volume levels have been well below the 3-month average.
The bearish technical data suggest investors may be skeptical that Micron will actually deliver on analysts' optimistic earnings forecasts. Analysts are forecasting that earnings will rise by more than 64 percent versus the same period a year ago. Meanwhile, revenue is forecast to increase by more than 34 percent to $8.3 billion. What may be even more important will be guidance the company provides for fiscal 2019.
MU EPS Estimates for Current Fiscal Year data by YCharts
Micron's falling stock - along with its low valuation - support the idea that investors have concerns about the company’s ability to deliver significant growth. Estimates for 2019 indicate that costs may rise with earnings expected to fall by about 1 percent as revenue grows 8 percent. So with Micron's results around the corner, the decline in the stock may be sending an ominous message.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.