It's been a great morning session for Applied Materials investors, who saw their shares rise 3.95% to a price of $116.5 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Applied Materials, Inc. is an American corporation that supplies equipment, services and software for the manufacture of semiconductor (integrated circuit) chips for electronics, flat panel displays for computers, smartphones and televisions, and solar products. The company belongs to the Consumer Cyclical sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Applied Materials has a trailing 12 month P/E ratio of 15.62 and a P/B ratio of 7.74.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
Applied Materials's PEG ratio is 3.775, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.