With a remarkable daily gain of 8.92% and an Earnings Per Share (EPS) of 35.91, Lam Research Corp (LRCX, Financial) has caught the attention of value investors. The question arises: is the stock fairly valued? This article will dive into a comprehensive valuation analysis of Lam Research (LRCX). Read on for an in-depth exploration of this intriguing stock.
Introduction to Lam Research Corp
Lam Research Corp (LRCX, Financial) is a key player in the semiconductor industry, manufacturing equipment used to fabricate semiconductors. The company primarily focuses on the etch, deposition, and clean markets, which are integral steps in the semiconductor manufacturing process. Lam Research's products are essential for the production of 3D NAND flash storage, advanced DRAM, and leading-edge logic/foundry chipmakers. Its flagship Kiyo, Vector, and Sabre products are sold globally to major customers such as Samsung Electronics, Micron, Intel, SK Hynix, and Taiwan Semiconductor Manufacturing.
As of July 27, 2023, Lam Research's stock price stands at $699.7, with a market cap of $94 billion. The stock's value aligns closely with its GF Value, an estimation of fair value, which is calculated at $646.13. This balance suggests that Lam Research is fairly valued.
Understanding the GF Value of Lam Research
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor derived from the company's past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's ideal fair trading value.
For Lam Research (LRCX, Financial), the GF Value indicates that the stock is fairly valued. This assessment is based on a combination of historical multiples, an adjustment factor tailored to Lam Research's past growth, and future performance predictions. With the stock price in line with the GF Value Line, Lam Research's future returns are likely to mirror its business growth rate.
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Financial Strength of Lam Research
Before investing in a company, it's crucial to evaluate its financial health. Companies with weak financial strength pose a higher risk of permanent loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into a company's financial strength. Lam Research has a cash-to-debt ratio of 1.07, which, although lower than 61.99% of companies in the Semiconductors industry, still indicates strong financial health with a score of 8 out of 10.
Profitability and Growth of Lam Research
Investing in profitable companies, especially those with consistent profitability over the long term, typically poses less risk. Lam Research has been profitable for 10 out of the past 10 years, boasting an impressive operating margin of 30.97%, which ranks better than 93.17% of companies in the Semiconductors industry. Over the past twelve months, the company recorded a revenue of $18.9 billion and EPS of $35.91.
Growth is a crucial factor in company valuation. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Lam Research's average annual revenue growth is 26.6%, outperforming 80.44% of companies in the Semiconductors industry. The company's 3-year average EBITDA growth is 31.2%, ranking better than 60.52% of companies in the industry.
ROIC vs WACC: A Profitability Indicator
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate that a company is expected to pay on average to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Lam Research's ROIC was 41.97, while its WACC stood at 12.85.
Conclusion
In conclusion, Lam Research (LRCX, Financial) is estimated to be fairly valued. The company boasts strong financial health and profitability, and its growth outperforms 60.52% of companies in the Semiconductors industry. For a deeper dive into Lam Research's stock, explore its 30-Year Financials here.
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