Essential Facts About Applied Materials

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.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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