Is Lam Research (LRCX) Overvalued? A Comprehensive Analysis of Its Market Value

Lam Research Corp (

LRCX, Financial) experienced a daily gain of 2.31% and a 3-month gain of 14.21%, with an Earnings Per Share (EPS) of 33.14 as of August 31, 2023. Despite these positive figures, the question arises: is the stock modestly overvalued? This article aims to answer this question through a detailed valuation analysis. Read on to gain insights into Lam Research’s financial standing, profitability, and growth prospects.

Company Introduction

Lam Research Corp, a leading semiconductor manufacturer, is known for its innovative equipment used in the fabrication of semiconductors. The firm focuses on the etch, deposition, and clean markets, serving key customers like Samsung Electronics, Micron, Intel, SK Hynix, and Taiwan Semiconductor Manufacturing. With a market cap of $93.10 billion and sales of $17.40 billion, Lam Research’s stock price stands at $702.4, which is higher than its estimated fair value (GF Value) of $612.27. This discrepancy points towards the stock being modestly overvalued.

Understanding GF Value

The GF Value is a proprietary measure of a stock’s intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, it is undervalued and its future return is likely to be higher.

Lam Research (

LRCX, Financial) is estimated to be modestly overvalued according to GuruFocus’s valuation method. As a result, the long-term return of its stock is likely to be lower than its business growth.

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Financial Strength

Before investing in a company, it’s crucial to assess its financial strength. Investing in companies with poor financial strength poses a higher risk of permanent loss. A company’s cash-to-debt ratio and interest coverage offer valuable insights into its financial strength. Lam Research has a cash-to-debt ratio of 1.07, which is worse than 63.88% of 897 companies in the Semiconductors industry. However, its overall financial strength is rated 8 out of 10, indicating strong financial health.

Profitability and Growth

Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Lam Research has been profitable 10 times over the past 10 years. With an operating margin of 29.93%, Lam Research ranks better than 93.07% of 938 companies in the Semiconductors industry. Its profitability is rated 10 out of 10, indicating strong profitability.

Growth is a critical factor in a company’s valuation. Lam Research’s 3-year average annual revenue growth is 24%, ranking better than 75.52% of 866 companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 27%, ranking better than 56.31% of 769 companies in the Semiconductors industry.

ROIC vs WACC

Comparing a company’s Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. Over the past 12 months, Lam Research’s ROIC was 36.85, and its WACC was 12.89, indicating a healthy return on invested capital.

Conclusion

In conclusion, Lam Research (

LRCX, Financial) appears to be modestly overvalued. Despite this, the company boasts strong financial health and profitability. Its growth ranks better than 56.31% of 769 companies in the Semiconductors industry. For a more detailed analysis of Lam Research’s financials, check out its 30-Year Financials here.

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