Applied Materials (AMAT, Financial) has been making waves in the stock market with a daily change of -4% and a 3-month gain of 20.55%. The company's Earnings Per Share (EPS) stands at 7.58. But the question that arises is - Is the stock fairly valued? This article aims to provide a comprehensive valuation analysis of Applied Materials. Let's dive in.
Company Overview
Applied Materials Inc (AMAT, Financial), the world's largest supplier of semiconductor manufacturing equipment, provides materials engineering solutions that contribute to nearly every chip in the world. With its systems being used in almost every major process step, barring lithography, Applied Materials has a significant presence in the semiconductor industry. As of August 13, 2023, the company's stock price stands at $138.83, while its GF Value, an estimate of fair value, is $131.25.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it indicates potential overvaluation or undervaluation, influencing future returns.
Applied Materials (AMAT, Financial) appears to be fairly valued according to the GuruFocus Value calculation. With a current market cap of $116.60 billion, the stock price is likely to mirror the rate of its business growth since it is fairly valued.
Financial Strength
Assessing a company's financial strength is crucial to avoid high risks of permanent capital loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Applied Materials' cash-to-debt ratio of 0.83 ranks lower than 67.54% of companies in the Semiconductors industry. However, its overall financial strength is 8 out of 10, indicating a strong financial position.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. Applied Materials' profitability is strong, with high profit margins and a record of profitability in 10 of the past 10 years. The company's operating margin of 29.28% ranks better than 92.62% of companies in the Semiconductors industry.
Company growth is also a vital factor in valuation. Applied Materials' 3-year average annual revenue growth rate is 23.9%, which ranks better than 75.09% of companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 32.1%, outperforming 61.69% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Applied Materials' ROIC is 33.65 while its WACC is 13.9. This indicates that the company is creating value for its shareholders as the ROIC exceeds the WACC.
Conclusion
In conclusion, Applied Materials stock appears to be fairly valued. The company boasts strong financial conditions and profitability. Its growth ranks better than 61.69% of companies in the Semiconductors industry. For more details about Applied Materials stock, check out its 30-Year Financials here.
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