On July 28, 2023, KLA Corp (KLAC, Financial) saw a daily gain of 5.48%, with its Earnings Per Share (EPS) standing at 24.52. The question on many investors' minds is whether this semiconductor giant is fairly valued. This article seeks to answer that question by providing a comprehensive valuation analysis of KLA (KLAC). Read on to gain valuable insights into the company's valuation, financial strength, profitability, and growth prospects.
Company Overview
KLA designs and manufactures yield-management and process-monitoring diagnostic and control (PDC) systems for the semiconductor manufacturing industry. These systems are crucial at various stages of a semiconductor's development. The company's laser-scanning products are used for wafer qualification, process monitoring, and equipment monitoring. KLA also offers inspection tools and systems for optical metrology and e-beam metrology. At the current price of $508.8 per share, and with a market cap of $69.8 billion, the primary question is whether KLA Corp (KLAC, Financial) is fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to GuruFocus Value calculation, KLA (KLAC, Financial) appears to be fairly valued. This estimation is based on the historical multiples that the stock has traded at, the past business growth, and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given that KLA is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Assessing a company's financial strength is a crucial step before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage can offer a clear picture of a company's financial health. KLA has a cash-to-debt ratio of 0.48, which is worse than 78.74% of companies in the Semiconductors industry. The overall financial strength of KLA is 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. KLA has been profitable 10 years over the past 10 years, with revenues of $10.6 billion and Earnings Per Share (EPS) of $24.52 in the past 12 months. Its operating margin of 39% is better than 96.7% of companies in the Semiconductors industry.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth rate of KLA is 27.8%, which ranks better than 82.16% of companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 35.9%, which ranks better than 67.14% of companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, KLA's ROIC was 39.47, while its WACC came in at 11.7.
Conclusion
Overall, KLA Corp (KLAC, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 67.14% of companies in the Semiconductors industry. For more details about KLA stock, you can check out its 30-Year Financials here.
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