With a daily gain of 3.31%, a three-month gain of 6.63%, and an Earnings Per Share (EPS) of 24.09, KLA Corp (KLAC, Financial) has been garnering attention in the stock market. But is the stock fairly valued? This article seeks to answer this question by presenting a comprehensive valuation analysis. Let's delve into the financials and performance of KLA.
Company Overview
KLA designs and manufactures yield-management and process-monitoring diagnostic and control systems for the semiconductor manufacturing industry. The firm's laser-scanning products are used for wafer qualification, process monitoring, and equipment monitoring. KLA also provides inspection tools and systems for optical metrology and e-beam metrology. With a current stock price of $498.62, KLA Corp (KLAC, Financial) has a market cap of $68 billion. But how does this compare to its GF Value?
Understanding GF Value
The GF Value is a proprietary measure that estimates the current intrinsic value of a stock. This value is calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and future business performance estimates. The GF Value Line serves as a guide to the stock's ideal fair trading value.
According to the GF Value, KLA (KLAC, Financial) appears to be fairly valued. The GF Value estimates the stock's fair value at $475.01, considering historical multiples, internal adjustments based on past business growth, and future performance estimates. If the stock price is significantly above the GF Value Line, it may be overvalued, indicating poor future returns. Conversely, if it's significantly below the GF Value Line, the stock may be undervalued, suggesting high future returns.
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.
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Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. A great starting point is looking at the cash-to-debt ratio and interest coverage. KLA has a cash-to-debt ratio of 0.54, which is worse than 77.32% of 904 companies in the Semiconductors industry. GuruFocus ranks KLA's overall financial strength at 6 out of 10, indicating that it is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have shown consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. KLA has been profitable 10 years over the past 10 years. Its operating margin of 38.06% is better than 96.86% of 954 companies in the Semiconductors industry. Overall, GuruFocus ranks KLA's profitability as strong.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. KLA's average annual revenue growth is 26.8%, ranking better than 80.55% of 874 companies in the Semiconductors industry. Its 3-year average EBITDA growth is 40.6%, ranking better than 72.9% of 775 companies in the Semiconductors industry.
Return on Invested Capital vs. 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. In contrast, 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. Ideally, the ROIC should be higher than the WACC. For the past 12 months, KLA's ROIC is 37.17, and its cost of capital is 12.74.
Conclusion
Overall, KLA (KLAC, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 72.9% of 775 companies in the Semiconductors industry. To learn more about KLA stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
