We've been asking ourselves recently if the market has placed a fair valuation on KLA. 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.
KLA's Valuation Is in Line With Its Sector Averages:
KLA Corporation designs, manufactures, and markets process control, process-enabling, and yield management solutions for the semiconductor and related electronics industries worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 35.0 and an average price to book (P/B) ratio of 7.92. In contrast, KLA has a trailing 12 month P/E ratio of 30.4 and a P/B ratio of 26.76.
KLA's PEG ratio is 4.3, 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.
Increasing Revenues but Narrowing Margins:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $876 | $4,569 | $5,806 | $6,919 | $9,212 | $10,496 |
| Revenue Growth | n/a | 421.55% | 27.09% | 19.16% | 33.14% | 13.94% |
| Net Margins | 92% | 26% | 21% | 30% | 36% | 32% |
| Net Income (MM) | $802 | $1,176 | $1,217 | $2,078 | $3,322 | $3,387 |
| Net Interest Expense (MM) | $114 | $125 | $160 | $157 | $160 | $297 |
| Depreciation & Amort. (MM) | $63 | $233 | $348 | $333 | $363 | $415 |
| Earnings Per Share | $5.1 | $7.49 | $7.7 | $13.37 | $21.92 | $24.71 |
| EPS Growth | n/a | 46.86% | 2.8% | 73.64% | 63.95% | 12.73% |
| Diluted Shares (MM) | 153 | 159 | 156 | 152 | 142 | 137 |
| Free Cash Flow (MM) | $1,162 | $1,022 | $1,626 | $1,953 | $3,005 | $3,328 |
| Capital Expenditures (MM) | $67 | $130 | $153 | $232 | $307 | $342 |
| Current Ratio | 3.03 | 2.55 | 2.59 | 2.41 | 2.34 | 2.21 |
| Total Debt (MM) | $2,238 | $3,650 | $3,461 | $3,444 | $6,114 | $5,892 |
KLA has rapidly growing revenues and increasing reinvestment in the business and exceptional EPS growth. Additionally, the company's financial statements display generally positive cash flows and an excellent current ratio. However, the firm has High Levels of Debt. Finally, we note that KLA has decent net margins with a negative growth trend.
