Applied Materials Inc (AMAT, Financial) experienced a daily gain of 2.95% and a 3-month gain of 3.58%. With an Earnings Per Share (EPS) of 7.58, the question arises: is the stock Fairly Valued? This article provides a detailed valuation analysis of Applied Materials (AMAT), offering value investors valuable insights into the company's intrinsic value.
Company Introduction
Applied Materials, the world's largest supplier of semiconductor manufacturing equipment, provides materials engineering solutions that make nearly every chip in the world. The company's systems are used in nearly every major process step except lithography. With a stock price of $146.38 and a GF Value of $143.14, the company appears to be fairly valued. To understand this better, let's delve deeper into the company's value.
GF Value Explained
The GF Value is a proprietary measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line indicates the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Applied Materials' stock appears to be fairly valued based on GuruFocus' valuation method. With a market cap of $122.50 billion, the stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Since Applied Materials is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Assessing Applied Materials' Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Applied Materials has a cash-to-debt ratio of 1.07, which ranks worse than 63.38% of 904 companies in the Semiconductors industry. However, the overall financial strength of Applied Materials is 8 out of 10, indicating strong financial health.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Applied Materials has been profitable 10 over the past 10 years. Its operating margin is 28.92%, which ranks better than 92.66% of 954 companies in the Semiconductors industry. Overall, the profitability of Applied Materials is ranked 10 out of 10, indicating strong profitability.
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. The average annual revenue growth of Applied Materials is 23.9%, which ranks better than 74.94% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth is 32.1%, which ranks better than 61.55% of 775 companies in the Semiconductors industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. For the past 12 months, Applied Materials's return on invested capital is 32.44, and its cost of capital is 14.99.
Conclusion
In conclusion, the stock of Applied Materials appears to be fairly valued. The company's financial condition is strong, and its profitability is strong. Its growth ranks better than 61.55% of 775 companies in the Semiconductors industry. To learn more about Applied Materials stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out 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.
