Applied Materials Inc (AMAT, Financial) has recently showcased a notable daily gain of 6.35% and an impressive three-month gain of 29.22%. With an Earnings Per Share (EPS) of 8.5, investors are keen to understand whether the stock is significantly overvalued. This article delves into the valuation analysis of Applied Materials (AMAT), providing investors with a detailed exploration of its current market position.
Company Introduction
Applied Materials is a titan in the semiconductor industry, holding the title of the world's largest semiconductor wafer fabrication equipment manufacturer. With a vast portfolio that covers almost every aspect of the WFE ecosystem, Applied Materials boasts a leading market share in deposition processes. Its clientele includes the biggest names in chip manufacturing, such as TSMC, Intel, and Samsung. The company's stock price currently stands at $199.57, with a market cap of $166.10 billion. By comparing this to the GF Value, which estimates the stock's fair value at $145.68, we can initiate a deeper investigation into its true valuation.
Summarize GF Value
The GF Value is a unique calculation that determines the intrinsic value of a stock. It takes into account historical trading multiples, an adjustment factor based on the company's past performance, and future business performance estimates. If a stock price significantly exceeds the GF Value Line, it is considered overvalued, which may lead to poor future returns. Conversely, a price below the GF Value Line suggests a potentially higher future return. Currently, Applied Materials (AMAT, Financial) is deemed significantly overvalued, with its stock price towering over the GF Value Line. This suggests that the long-term return of its stock might not align with the company's future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Assessing a company's financial strength is crucial before investing in its stock. Applied Materials has a cash-to-debt ratio of 1.15, placing it in a less favorable position than 58.72% of its peers in the Semiconductors industry. Despite this, its overall financial strength score is a robust 8 out of 10, indicating a strong financial condition.
Profitability and Growth
Investing in profitable companies, especially those with a history of consistent profitability, generally carries less risk. Applied Materials has maintained profitability for the past decade, with an operating margin of 28.87%, ranking higher than 93.29% of its industry counterparts. The company's profitability score is an impressive 10 out of 10.
Growth is another critical valuation factor, as it is closely correlated with long-term stock performance. Applied Materials has an average annual revenue growth rate of 19%, outperforming 66.48% of the semiconductor industry. Its 3-year average EBITDA growth rate is 24.6%, which is also noteworthy.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) offers insight into a company's profitability relative to its invested capital. Applied Materials' ROIC is an impressive 33, significantly higher than its WACC of 13.72, indicating efficient capital utilization.
Conclusion
In conclusion, Applied Materials (AMAT, Financial) appears to be significantly overvalued when considering its current market price relative to the GF Value. Despite this, the company's financials are strong, and its profitability is robust. Its growth rates are commendable, placing it in a favorable position within the semiconductor industry. For a more in-depth look at Applied Materials' financials, interested parties can explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please visit the GuruFocus High Quality Low Capex Screener.
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.
