By Contributor,Jaque Silva,Trefis Team
Copyright forbes
The Applied Materials logo appears on a smartphone screen in this illustration photo in Reno, United States, on December 17, 2024. (Photo by Jaque Silva/NurPhoto via Getty Images)
NurPhoto via Getty Images
We believe there are only a few concerns to consider regarding AMAT stock due to its overall Strong operational performance and financial health. This aligns with the stock’s High valuation, which leads us to conclude that it is Fairly Priced.
Below is our comprehensive assessment.
Buy or Fear AMAT Stock
That is one perspective on stocks. Trefis High Quality Portfolio evaluates much more and aims to mitigate stock-specific risk while providing upside exposure.
Let’s delve into details of each of the evaluated factors, but first, for a brief background: With $176 Bil in market capitalization, Applied Materials offers manufacturing equipment, services, and software for semiconductor chip fabrication and display technologies, including liquid crystal displays and organic light-emitting diodes.
[1] Valuation Appears High
AMAT Valuation
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This table illustrates how AMAT is valued compared to the broader market. For additional details see: AMAT Valuation Ratios
[2] Growth Is Moderate
Applied Materials has experienced its top line grow at an average rate of 4.4% over the previous 3 years
Its revenues have grown 6.6% from $27 Bil to $29 Bil over the last 12 months
Additionally, its quarterly revenues grew 7.7% to $7.3 Bil in the most recent quarter, compared to $6.8 Bil a year ago.
For additional details see: AMAT Revenue Comparison
[3] Profitability Seems Very Strong
AMAT’s operating income over the last 12 months was $8.6 Bil, which represents an operating margin of 30.1%
With a cash flow margin of 26.9%, it generated nearly $7.7 Bil in operating cash flow during this timeframe
During the same period, AMAT generated almost $6.8 Bil in net income, indicating a net margin of approximately 23.9%
For additional information see: AMAT Operating Income Comparison
[4] Financial Stability Appears Very Strong
AMAT debt was $6.8 Bil at the end of the most recent quarter, while its current market cap is $176 Bil. This suggests a debt-to-equity ratio of 3.8%
AMAT cash (including cash equivalents) comprises $7.0 Bil of $34 Bil in total assets. This results in a cash-to-assets ratio of 20.5%
[5] Downturn Resilience Is Weak
AMAT has performed worse than the S&P 500 index during various economic downturns. We evaluate this based on both (a) the extent of the stock’s decline and (b) the speed of its recovery.
2022 Inflation Shock
AMAT stock dropped 55.4% from a peak of $167.00 on 14 January 2022 to $74.41 on 17 October 2022, compared to a peak-to-trough decline of 25.4% for the S&P 500.
Nevertheless, the stock fully rebounded to its pre-Crisis peak by 19 January 2024
Since then, the stock has risen to a high of $254.97 on 10 July 2024 and currently trades at $220.30.
2020 Covid Pandemic
AMAT stock decreased 43.6% from a peak of $67.41 on 19 February 2020 to $37.99 on 20 March 2020 compared to a peak-to-trough decline of 33.9% for the S&P 500.
However, the stock fully returned to its pre-Crisis peak by 14 August 2020
2008 Global Financial Crisis
AMAT stock fell 64.5% from a peak of $22.96 on 8 August 2007 to $8.14 on 20 November 2008, compared to a peak-to-trough decline of 56.8% for the S&P 500.
However, the stock fully returned to its pre-Crisis peak by 7 July 2014
However, the risk isn’t limited to significant market crashes. Stocks can decline even in favorable markets – consider events like earnings reports, business updates, and shifts in outlook. Read AMAT Dip Buyer Analyses to see how the stock has rebounded from substantial declines in the past.
The Trefis High Quality (HQ) Portfolio, featuring a collection of 30 stocks, has a history of consistently outperforming its benchmark which includes all three indices – S&P 500, Russell, and S&P midcap. How is this possible? As a category, HQ Portfolio stocks have delivered better returns with lower risk compared to the benchmark index; a smoother experience, as shown in HQ Portfolio performance metrics.
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