Lam Research Corp (LRCX, Financial) has seen a daily gain of 1.65%, with a 3-month gain of 3.67% and an Earnings Per Share (EPS) of 33.14. With these figures in mind, we aim to answer the question: is Lam Research (LRCX) fairly valued? In this analysis, we'll delve into the company's valuation, financial strength, profitability, and growth to provide a comprehensive understanding of its true worth. Keep reading to learn more about the intrinsic value of this semiconductor giant.
Introduction to Lam Research
Lam Research Corp (LRCX, Financial) is a leading manufacturer of equipment used to fabricate semiconductors. The company's focus is on the etch, deposition, and clean markets, which are crucial steps in the semiconductor manufacturing process. Lam Research's flagship products, the Kiyo, Vector, and Sabre are sold globally to key customers such as Samsung Electronics, Micron, Intel, SK Hynix, and Taiwan Semiconductor Manufacturing.
The company's stock price currently stands at $633.42, which is slightly above its GF Value of $607.15, suggesting that the stock is fairly valued. The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates.
Understanding the GF Value of Lam Research
The GF Value represents the current intrinsic value of a stock, computed based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should be trading at.
According to our valuation method, Lam Research (LRCX, Financial) is fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth. If the stock price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock price is significantly below the GF Value Line, its future return will likely be higher.
Financial Strength of Lam Research
Investing in companies with poor financial strength can pose a higher risk of permanent loss. Therefore, it's important to assess the financial strength of a company before buying its stock. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Lam Research has a cash-to-debt ratio of 1.07, which is worse than 63.75% of 902 companies in the Semiconductors industry. However, the overall financial strength of Lam Research is 8 out of 10, which indicates that the financial strength of Lam Research is strong.
Lam Research: Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. 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 93.24% of 947 companies in the Semiconductors industry. Overall, GuruFocus ranks the profitability of Lam Research at 10 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Lam Research is 24%, which ranks better than 75.4% of 870 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 27%, which ranks better than 56.72% of 774 companies in the Semiconductors industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. 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 (LRCX, Financial) is believed to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 56.72% of 774 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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