We've been asking ourselves recently if the market has placed a fair valuation on Applied Materials. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.
A Lower P/E Ratio Than Its Sector Average but Trades Above Its Graham Number:
Applied Materials, Inc. engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Applied Materials has a trailing 12 month P/E ratio of 19.3 and a P/B ratio of 8.09.
Applied Materials's PEG ratio is 1.35, 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.
The Company Has a Positive Net Current Asset Value:
| 2017-12-15 | 2018-12-13 | 2019-12-13 | 2020-12-11 | 2021-12-17 | 2022-12-16 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $14,537 | $16,705 | $14,608 | $17,202 | $23,063 | $25,785 |
| Gross Margins | 45.0% | 45.0% | 44.0% | 45.0% | 47.0% | 47.0% |
| Operating Margins | 27% | 27% | 23% | 25% | 31% | 30% |
| Net Margins | 24.0% | 18.0% | 19.0% | 21.0% | 26.0% | 25.0% |
| Net Income (MM) | $3,434 | $3,038 | $2,706 | $3,619 | $5,888 | $6,525 |
| Net Interest Expense (MM) | -$198 | -$234 | -$237 | -$240 | -$236 | -$228 |
| Depreciation & Amort. (MM) | -$407 | -$457 | -$363 | -$376 | -$394 | -$444 |
| Earnings Per Share | $3.17 | $2.96 | $2.86 | $3.92 | $6.38 | $7.44 |
| EPS Growth | n/a | -6.62% | -3.38% | 37.06% | 62.76% | 16.61% |
| Diluted Shares (MM) | 1,084 | 1,026 | 945 | 923 | 923 | 877 |
| Free Cash Flow (MM) | $4,134 | $4,409 | $3,688 | $4,226 | $6,110 | $6,186 |
| Capital Expenditures (MM) | -$345 | -$622 | -$441 | -$422 | -$668 | -$787 |
| Net Current Assets (MM) | $2,848 | -$184 | -$604 | $1,594 | $2,529 | $1,393 |
| Long Term Debt (MM) | $5,304 | $5,309 | $4,713 | $5,448 | $5,452 | $5,457 |
Applied Materials benefits from a pattern of improving cash flows, an excellent current ratio, and healthy debt levels. The company's financial statements show average operating margins with a stable trend and a strong EPS growth trend. However, the firm has slimmer gross margins than its peers. Finally, we note that Applied Materials has weak revenue growth and a flat capital expenditure trend.
