Applied Materials Inc (AMAT, Financial) has recently experienced a daily loss of 3.17%, yet it boasts a 3-month gain of 28.42%. With an Earnings Per Share (EPS) of 8.5, investors are prompted to question whether the stock is significantly overvalued. This article delves into a valuation analysis to uncover the true worth of Applied Materials (AMAT), inviting readers to explore the following insights.
Company Introduction
Applied Materials Inc (AMAT, Financial) is a titan in the semiconductor industry, holding the crown as the largest manufacturer of wafer fabrication equipment. Serving an elite clientele that includes TSMC, Intel, and Samsung, Applied Materials stands out with its market share leadership in deposition and exposure to general-purpose logic chips. With a current stock price of $199.05 and a GF Value of $146.71, a closer examination of the company's valuation is imperative. This analysis will integrate the company's financials with its market performance to provide a clearer picture of its intrinsic value.
Summarize GF Value
The GF Value is a unique measure that determines the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price significantly surpasses the GF Value Line, it may suggest overvaluation and potentially poorer future returns. Conversely, a price well below the GF Value Line could indicate undervaluation and the prospect of higher future returns. Applied Materials (AMAT, Financial) currently appears significantly overvalued, with the stock's price towering over the GF Value estimate. This suggests that the long-term return of its stock could be less than its future business growth.
Financial Strength
Investing in companies with robust financial strength mitigates the risk of capital loss. Applied Materials has a cash-to-debt ratio of 1.25, placing it in a less favorable position than over half of its industry peers. However, with a financial strength ranking of 8 out of 10, the company's overall financial health remains strong. This is evidenced by the historical data of the company's debt and cash reserves.
Profitability and Growth
Consistent profitability over time signals a lower risk for investors, and Applied Materials has maintained profitability for the past decade. With an impressive operating margin that outperforms most of its industry competitors, the company's profitability rank is a solid 10 out of 10. In terms of growth, Applied Materials' revenue and EBITDA growth rates are commendable, suggesting value creation for shareholders.
Return on Invested Capital vs. Weighted Average Cost of Capital
An insightful way to gauge profitability is by comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Applied Materials' ROIC is more than double its WACC, indicating efficient capital use and shareholder value creation. The historical comparison of ROIC and WACC below further illustrates the company's financial performance.
Conclusion
Overall, Applied Materials (AMAT, Financial) stock is estimated to be significantly overvalued. Nevertheless, the company's financial condition is robust, and its profitability is strong. Its growth outpaces a majority of competitors in the Semiconductors industry. For a deeper understanding of Applied Materials' financials, investors can explore the 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.
