Lam Research Corp (LRCX, Financial) recently showcased a daily gain of 5.41% and a modest 3-month gain of 0.16%, with an impressive Earnings Per Share (EPS) of 29.41. Investors and analysts often grapple with the question of valuation: Is Lam Research modestly overvalued? To address this, we delve into a detailed valuation analysis, inviting readers to explore the financial metrics and intrinsic value of Lam Research.
Company Introduction
Lam Research Corp (LRCX, Financial) stands as a titan in the semiconductor industry, specializing in wafer fabrication equipment. With a dominant presence in deposition and etch segments, Lam Research has secured a top market share in etch and a strong second in deposition. Its customer base includes some of the world's largest chipmakers, such as TSMC, Samsung, Intel, and Micron. Despite its market cap of $90.30 billion and robust sales of $15.80 billion, the company's current stock price of $685.43 is juxtaposed against a GF Value of $570.98, suggesting a modest overvaluation. This comparison sets the stage for an in-depth analysis of Lam Research's intrinsic value.
Summarize GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it may be overvalued, leading to potentially poor future returns. Conversely, a price well below the GF Value Line could indicate undervaluation and the prospect of higher future returns. Currently, Lam Research (LRCX, Financial) appears modestly overvalued with its share price above the GF Value Line.
Given this modest overvaluation, Lam Research's stock may yield lower long-term returns compared to its business growth. This assessment is critical for investors considering the long-term potential of their investments.
Financial Strength
Assessing a company's financial strength is crucial before investing. Companies with weak financials pose a higher risk of permanent loss. Lam Research's cash-to-debt ratio of 1.04 places it lower than 63.02% of its peers in the semiconductor sector. However, its overall financial strength score of 8 out of 10 signifies robust financial health.
Profitability and Growth
Investing in profitable companies, particularly those with a track record of consistent profitability, is generally less risky. Lam Research has maintained profitability for the last decade, with an operating margin of 28.7%, ranking higher than 92.66% of its industry counterparts. Its profitability rank is a solid 10 out of 10.
Growth is a pivotal factor in a company's valuation. Lam Research's 3-year average revenue growth rate surpasses 75.14% of companies in the semiconductor industry, and its 3-year average EBITDA growth rate of 27% ranks better than 56.77% of its peers.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to the capital invested. Lam Research's ROIC of 32.16 is significantly higher than its WACC of 14.75, indicating efficient capital utilization.
Conclusion
In summary, Lam Research (LRCX, Financial) is modestly overvalued based on its current market price. The company boasts a strong financial condition and exceptional profitability, with growth rates surpassing a significant portion of the semiconductor industry. For a comprehensive understanding of Lam Research's financials, interested parties can explore 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.
