Considering Lam Research for a Short

| About: Lam Research (LRCX)

Lam Research Corp (NASDAQ:LRCX) has come under selling pressure the last two days, with analysts downgrading the company after disappointing 2nd quarter results and poor guidance for the 3rd quarter from the semiconductor processing equipment maker. Analysts were already expecting weakness, with sales growth for the year in the negative 50% area. Earnings are expected to tumble 100% compared last year's results.

2nd Quarter Results

The company posted a 9 cent loss on Thursday, compared to an expected 5 cent loss for the 2nd quarter earnings. The revenue was a little bit stronger than expected, coming in at $283 million compared to an average estimate of $277 million. The company has had difficulty due to market conditions, including an oversupply of chips and falling prices.

3rd Quarter Trouble

The company also gave guidance for their 3rd Quarter that was not very positive. Lam is now projecting sales for the quarter to be in the range of $160 million to $190 million. This is substantially below the previous revenue expectations of $244 million. The company is also planning to reduce production and cut wages for all employees.

The Trade

The stock fell 12% on Thursday after the earnings were released and continued to decline Friday another 4.25%. I like that the stock was rallying prior to the earnings announcement and has now signaled a sell (The 13 day MA crossed the 50 day MA). There is plenty of room for the stock to fall at this time. The stock has a forward P/E of 54.62 while analysts are cutting future earnings expectations. I think the stock will continue to fall over the next three months, and you can take a short position on small rallies.

Disclosure: None