Lam Research Corp (LRCX, Financial) has recently experienced a daily loss of -5.08% and a 3-month gain of 0.68%. With an Earnings Per Share (EPS) of 33.14, the question arises: is the stock fairly valued? This article aims to provide a comprehensive analysis of Lam Research's valuation and encourage readers to delve into the subsequent financial assessment.
Introduction to Lam Research
Lam Research manufactures equipment used to fabricate semiconductors, focusing on the etch, deposition, and clean markets. These are key steps in the semiconductor manufacturing process, particularly for 3D NAND flash storage, advanced DRAM, and leading-edge logic/foundry chipmakers. Lam Research's flagship Kiyo, Vector, and Sabre products are sold in all major geographies to key customers such as Samsung Electronics, Micron, Intel, SK Hynix, and Taiwan Semiconductor Manufacturing. With a stock price of $623.11 and a GF Value of $608, Lam Research appears to be fairly valued. The following sections will provide a more in-depth exploration of the company's value.
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. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $623.11 per share, Lam Research has a market cap of $82.60 billion, showing signs of being fairly valued. As Lam Research is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing Lam Research's Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. Lam Research has a cash-to-debt ratio of 1.07, which ranks worse than 63.78% of 900 companies in the Semiconductors industry. However, the overall financial strength of Lam Research is 8 out of 10, indicating strong financial health.
Profitability and Growth of Lam Research
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Lam Research has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $17.40 billion and Earnings Per Share (EPS) of $33.14. Its operating margin is 29.93%, which ranks better than 93.22% of 944 companies in the Semiconductors industry. Overall, the profitability of Lam Research is ranked 10 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Lam Research's 3-year average revenue growth rate is better than 75.49% of 869 companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 27%, which ranks better than 56.61% of 772 companies in the Semiconductors industry.
Comparing ROIC and WACC
Another way to look at the profitability of a company is to compare its return on invested capital (ROIC) and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Lam Research's return on invested capital is 36.85, and its cost of capital is 13.92.
Conclusion
In conclusion, the stock of Lam Research shows every sign of being fairly valued. The company's financial condition is strong, and its profitability is strong. Its growth ranks better than 56.61% of 772 companies in the Semiconductors industry. To learn more about Lam Research stock, you can check out its 30-Year Financials here.
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