KLA Corporation currently trades at $182.67 and has been a dream stock for shareholders. It’s returned 434% since August 2021, blowing past the S&P 500’s 69.4% gain. The company has also beaten the index over the past six months as its stock price is up 19% thanks to its solid quarterly results.
Is now still a good time to buy KLAC? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Is KLA Corporation a Good Business?
Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ: KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, KLA Corporation’s sales grew at an impressive 14.4% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
2. Operating Margin Reveals a Well-Run Organization
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
KLA Corporation has been a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 40.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. 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.
KLA Corporation has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging 29.2% over the last two years.
Final Judgment
These are just a few reasons why we think KLA Corporation is a high-quality business, and with its shares topping the market in recent months, the stock trades at 33.5× forward P/E (or $182.67 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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