Today's stock market performance of KLA Corp (KLAC, Financial) shows a daily gain of 1.92%, with a 3-month loss of -2.27%. The company's Earnings Per Share (EPS) stands at 24.09. But is the stock fairly valued? Let's delve into a thorough valuation analysis to answer this question.
Company Introduction
KLA Corp (KLAC, Financial) designs and manufactures yield-management and process-monitoring diagnostic and control systems for the semiconductor manufacturing industry. These systems are used to analyze the manufacturing process at various steps in a semiconductor's development. KLA's laser-scanning products are used for wafer qualification, process monitoring, and equipment monitoring. The firm also provides inspection tools and systems for optical metrology and e-beam metrology.
With a current stock price of $455.51, KLA has a market cap of $62.30 billion. The GF Value of KLA, an estimation of its fair value, is $474.93. This comparison between the stock price and the GF Value will pave the way for a deeper exploration of KLA's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. This GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
For KLA (KLAC, Financial), the GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $455.51 per share, KLA is estimated to be fairly valued. This means that the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Before investing in a company's stock, it's crucial to check its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. One way to understand the financial strength of a company is by looking at the cash-to-debt ratio and interest coverage. KLA has a cash-to-debt ratio of 0.54, which is lower than 77.88% of 904 companies in the Semiconductors industry. The overall financial strength of KLA is rated 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. KLA has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $10.50 billion and Earnings Per Share (EPS) of $24.09. Its operating margin of 38.06% is better than 96.95% of 952 companies in the Semiconductors industry. Overall, GuruFocus ranks KLA's profitability as strong.
Growth is a crucial factor in a company's valuation. 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%, which ranks better than 80.62% of 872 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 40.6%, which ranks better than 72.9% of 775 companies in the Semiconductors industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its Return on Invested Capital (ROIC) with its 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. Ideally, the ROIC should be higher than the WACC. For the past 12 months, KLA's ROIC is 37.17, and its WACC is 12.55.
Conclusion
In summary, the stock of KLA (KLAC, Financial) is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 72.9% of 775 companies in the Semiconductors industry. To learn more about KLA stock, you can check out its 30-Year Financials here.
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