With a daily loss of 3.49% and a 3-month gain of 24.33%, KLA Corp (KLAC, Financial) has an Earnings Per Share (EPS) of 24.09. The question on investors' minds is: Is the stock fairly valued? In this analysis, we'll delve into the valuation of KLA Corp (KLAC), providing insights that will help investors make informed decisions. Read on for a comprehensive evaluation.
Company Overview
KLA Corp (KLAC, Financial) is a leading manufacturer of yield-management and process-monitoring diagnostic and control 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 stock price is currently $478.98, with a market cap of $65.50 billion. When compared to the GF Value of $477.56, it appears that KLA's stock is fairly valued. The following income breakdown provides a more detailed look at KLA's financial performance:
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line, visible on our summary page, represents the fair value at which the stock should ideally trade.
According to the GF Value, KLA's stock appears to be fairly valued. This assessment is based on historical multiples that the stock has traded at, past business growth, and analyst estimates of future business performance. If a stock's 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.
Given that 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
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before deciding to purchase shares. A company's cash-to-debt ratio and interest coverage are great ways to understand its financial strength. KLA has a cash-to-debt ratio of 0.54, which ranks worse than 76.89% of companies in the Semiconductors industry. However, the overall financial strength of KLA is 6 out of 10, indicating that it is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. 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 Earnings Per Share (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 one of the most important factors in the valuation of a company. KLA's 3-year average revenue growth rate is better than 80.85% of companies in the Semiconductors industry. KLA's 3-year average EBITDA growth rate is 40.6%, which ranks better than 72.86% of companies in the Semiconductors industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, KLA's ROIC is 37.17 while its WACC came in at 11.93.
Conclusion
In summary, the stock of KLA (KLAC, Financial) appears to be fairly valued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 72.86% 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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