What a time it’s been for Applied Materials. In the past six months alone, the company’s stock price has increased by a massive 86.1%, reaching $353.19 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy AMAT? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Do Investors Watch Applied Materials?
Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ: AMAT) is the largest provider of semiconductor wafer fabrication equipment.
Three Things to Like:
1. Operating Margin Reveals a Well-Run Organization
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Applied Materials has been an efficient company over the last two years. It was one of the more profitable businesses in the semiconductor sector, boasting an average operating margin of 28.7%.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Applied Materials has shown robust cash profitability, and if it can maintain this level of cash generation, will be in a fine position to ride out cyclical downturns while investing in plenty of new products and returning capital to investors. The company’s free cash flow margin averaged 21.7% over the last two years, quite impressive for a semiconductor business.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Applied Materials’s five-year average ROIC was 46.8%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
There are definitely things to like about Applied Materials, and with the recent surge, the stock trades at 28.7× forward P/E (or $353.19 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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