On December 11, 2023, KLA Corp (KLAC, Financial) experienced a notable daily gain of 4.64%, adding to its 3-month gain of 13.53%. With an impressive Earnings Per Share (EPS) of 22.3, investors are keenly observing KLA's stock. However, the pressing question remains: is the stock modestly overvalued? This article delves into the valuation analysis of KLA (KLAC), providing investors with a detailed examination of its market position and intrinsic value.
Company Introduction
KLA is a leading giant in the semiconductor wafer fabrication equipment (WFE) sector, specializing in semiconductor process control. With a majority market share in its segment, KLA's advanced machines inspect semiconductor wafers for defects and ensure precise measurements during research, development, and manufacturing stages. The company's clientele includes top chipmakers like TSMC and Samsung. Despite its current stock price of $559.21, KLA's Fair Value (GF Value) stands at $482.33, indicating a modest overvaluation. With a market cap of $76 billion, the question of whether KLA's stock price truly reflects its worth is a matter of analysis.
Summarize GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. According to this measure, KLA (KLAC, Financial) appears to be modestly overvalued. The GF Value Line suggests that the stock's future return might be lower than its business growth if it continues to trade above this line. This assessment is crucial for investors considering the long-term potential of their investments.
Financial Strength
Investors must consider a company's financial strength to mitigate the risk of permanent capital loss. KLA's cash-to-debt ratio is 0.55, positioning it lower than 74.38% of its peers in the Semiconductors industry. With a financial strength rating of 6 out of 10, KLA is deemed to have a fair level of financial stability.
Profitability and Growth
Profitability is a less risky attribute for investment, and KLA has shown consistent profitability over the last decade. The company's operating margin of 37.21% ranks higher than 96.87% of its industry counterparts. With a profitability rank of 10 out of 10, KLA's financial health appears robust. Additionally, the company's growth is a key valuation factor. KLA's 3-year average revenue growth rate surpasses 80.05% of the companies in the Semiconductors industry, and its EBITDA growth rate of 40.6% is higher than 73.16% of the industry's companies.
ROIC vs WACC
Assessing a company's profitability can also be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). KLA's ROIC of 33.82 significantly exceeds its WACC of 11.97, indicating effective cash flow generation in relation to invested capital and value creation for shareholders.
Conclusion
In conclusion, KLA (KLAC, Financial) is currently showing signs of modest overvaluation. With fair financial health and strong profitability, its growth prospects appear promising. Investors interested in KLA should consider the company's solid position in the Semiconductors industry and its potential for long-term value creation. For a deeper dive into KLA's financials, one 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.
