According to the GuruFocus value calculation, the inventory of applied materials (NAS: AMAT, 30-year financial data) would be significantly overvalued. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 139.595 per share and market cap of $ 127.6 billion, Applied Materials stock is estimated to be significantly overvalued. The GF value for the applied materials is shown in the table below.
Given that Applied Materials is significantly overvalued, its long-term stock return is likely to be much lower than the future growth of its business, which has averaged 11.2% over the past three years and is expected to grow 12.2%. , 32% per year over the next three to five years. years.
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Investing in companies with low financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. Applied Materials has a cash-to-debt ratio of 1.19, which is around the average for companies in the semiconductor industry. GuruFocus ranks the overall financial strength of Applied Materials at 7 out of 10, which indicates that the financial strength of Applied Materials is fair. Here is Applied Materials’ debt and cash flow over the past several years:
Companies that have historically been profitable over the long term pose less risk to investors who want to buy stocks. Higher profit margins usually dictate a better investment compared to a business with lower profit margins. Applied Materials has been profitable 10 in the past 10 years. In the past twelve months, the company had revenue of $ 19.8 billion and profit of $ 4.79 per share. His the operating margin is 28.07%, which ranks better than 92% of companies in the semiconductor industry. Overall, Applied Materials’ profitability is ranked 9 out of 10, indicating strong profitability. Here is Applied Materials sales and net income for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely tied to the long-term performance of a company’s stocks. The faster a company grows, the more likely it is to create shareholder value, especially if the growth is profitable. Applied Materials’ 3-year average annual revenue growth rate is 11.2%, which ranks better than 72% of companies in the semiconductor industry. The 3-year average EBITDA growth rate is 8.3%, which is in line with the average for companies in the semiconductor industry.
Another way to determine a company’s profitability is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) The extent to which a business 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 should pay on average to all of its security holders to finance its assets. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. Over the past 12 months, Applied Materials’ return on invested capital is 33.47 and its cost of capital is 10.34. The historical ROIC vs WACC comparison of applied materials is shown below:
In short, the stock of applied materials (NAS: AMAT, 30 years financial) gives all indications of being considerably overvalued. The company’s financial position is fair and its profitability is solid. Its growth is in the mid-range of companies in the semiconductor industry. To learn more about the Applied Materials inventory, you can view its 30-year financial data here.
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