As of August 11, 2023, KLA Corp (KLAC, Financial) has experienced a day's loss of -3.38%, contrasting with a 3-month gain of 24.32%. Its Earnings Per Share (EPS) (EPS) stands at 24.09. This article aims to answer the crucial question: Is KLA Corp's stock fairly valued? Continue reading for an in-depth valuation analysis.
Company Overview
KLA designs and manufactures yield-management and process-monitoring diagnostic and control, or PDC, systems for the semiconductor manufacturing industry. The firm's laser-scanning products are used for wafer qualification, process monitoring, and equipment monitoring. KLA also provides inspection tools and systems for optical metrology and e-beam metrology.
The company's current stock price is $479.51, and its market cap is $65.60 billion. The GF Value, an estimate of fair value, is $477.69, suggesting that KLA stock appears to be fairly valued. Here is a detailed income breakdown of KLA:
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It provides an overview of the fair value at which the stock should ideally be traded. This measure is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Considering these factors, KLA (KLAC, Financial) appears to be fairly valued. As KLA is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of KLA
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. KLA has a cash-to-debt ratio of 0.54, ranking worse than 77% of companies in the Semiconductors industry. The overall financial strength of KLA is 6 out of 10, indicating that it is fair.
This is the debt and cash of KLA over the past years:
Evaluating KLA's Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. KLA has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $10.50 billion and EPS of $24.09. Its operating margin of 38.06% is better than 96.47% of companies in the Semiconductors industry. Overall, GuruFocus ranks KLA's profitability as strong.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of KLA is 26.8%, ranking better than 80.85% of companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 40.6%, ranking better than 72.73% of companies in the Semiconductors industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, KLA's ROIC is 37.17, and its WACC is 11.92.
The historical ROIC vs WACC comparison of KLA is shown below:
Conclusion
Overall, KLA (KLAC, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 72.73% of companies in the Semiconductors industry. To learn more about KLA stock, you can check out its 30-Year Financials here.
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