Today, we delve into the valuation of KLA Corp (KLAC, Financial), a leading firm in the semiconductor manufacturing industry. With a slight daily loss of -3.34%, a minimal 3-month gain of 0.14%, and a robust Earnings Per Share (EPS) of 24.09, the question arises: is KLA (KLAC) fairly valued? This comprehensive analysis aims to answer this question and provide valuable insights to potential investors. Read on to discover what lies beneath KLA Corp's market value.
Company Overview
KLA Corp (KLAC, Financial) is a semiconductor manufacturing industry giant, known for its yield-management and process-monitoring diagnostic and control systems. These systems play a crucial role in the development of semiconductors, analyzing the manufacturing process at various stages. KLA's laser-scanning products are vital for wafer qualification, process monitoring, and equipment monitoring. Furthermore, the company provides optical metrology and e-beam metrology inspection tools and systems.
With a share price of $463.85 and a market cap of $63.40 billion, KLA's value is a subject of interest. This prompts a comparison with its GF Value, an estimate of fair value, which stands at $475.39. This comparison paves the way for an in-depth exploration of KLA's intrinsic value.
Understanding GF Value
The GF Value is an exclusive GuruFocus measure of a stock's intrinsic value. It's calculated based on historical trading multiples, a GuruFocus adjustment factor grounded in past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade.
According to our calculations, KLA (KLAC, Financial) is fairly valued. This estimation is based on the historical multiples at which the stock has traded, past business growth, and future performance estimates. If a stock's price is significantly above the GF Value Line, it's overvalued and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher. As KLA's stock is fairly valued, the long-term return is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with weak financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. A great starting point is the cash-to-debt ratio and interest coverage. KLA's cash-to-debt ratio of 0.54 is worse than 77.89% of companies in the Semiconductors industry. However, GuruFocus ranks KLA's overall financial strength at 6 out of 10, indicating fair financial strength.
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 for 10 years over the past decade. In the past 12 months, the company had revenues of $10.50 billion and an Earnings Per Share (EPS) of $24.09. Its operating margin of 38.06% is better than 96.93% of companies in the Semiconductors industry. Overall, GuruFocus ranks KLA's profitability as strong.
Growth is a critical factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. KLA's 3-year average annual revenue growth rate is 26.8%, ranking better than 80.78% of companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 40.6%, ranking better than 72.8% of companies in the Semiconductors industry.
ROIC vs WACC
Another way to assess a company's profitability is to compare its Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For KLA, the ROIC for the past 12 months is 37.17, and its WACC is 12.42.
Conclusion
In conclusion, KLA (KLAC, Financial) stock is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 72.8% of companies in the Semiconductors industry. For more detailed information about KLA stock, you can check out its 30-Year Financials here.
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