Looking at a 5 year chart of Lam Research (LRCX) surprisingly reveals that the stock has matched S&P 500's performance point for point. However, the past year the stock has struggled but this happens to be after a period of outperformance. Here are the six points I looked at while researching the stock:
Valuation: Lam Research's trailing 5 year valuation metrics suggest that the stock is undervalued as the valuation metrics tilt toward the lower end of their 5 year averages at current prices. Lam Research's current P/B ratio is 2.1 and it has averaged 2.9 over the past 5 years with a high of 5.9 and low of 1.5. Lam Research's current P/S ratio is 1.8 and it has averaged 2.3 over the past 5 years with a high of 4.4 and low of 1.4. Lam Research's current P/E ratio is 12.7 and it has averaged 12.7 over the past 5 years with a high of 41.5 and low of 7.7.
Price Target: The consensus price target for the analysts who follow Lam Research is $51. That is upside of 20% from today's stock price of $42.33 and suggests that the stock is close to being fairly valued at these levels.
Forward Valuation: Lam Research is currently trading at about $42 a share with analysts expecting EPS of $3.71 next year, an earnings increase of 73% y/y, for a forward P/E ratio of 11.4. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. KLA-Tencor (KLAC) is currently trading at about $49 a share with analysts expecting EPS of $4.52 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 10.9. Applied Materials (AMAT) is currently trading at about $13 a share with analysts expecting EPS of $1.13 next year, an earnings increase of 49% y/y, for a forward P/E ratio of 11.5. ASML (ASML) is currently trading at about $45 a share with analysts expecting EPS of $4.18 next year, an earnings increase of 22% y/y, for a forward P/E ratio of 10.8. The mean forward P/E of Lam Research's competitors is 11.1 which suggests that Lam Research is fairly valued relative to its publicly traded competitors.
Earnings Estimates: Lam Research has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between -2 cents and 9 cents from consensus estimates or about -3.1% to 13.3% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Top Stock Holders: The top two funds that own Lam Research are JPMorgan US Large Cap Core Plus A, which owns 2.3 million shares or 1.9% of the shares outstanding, and T. Rowe Price Science & Tech, which owns 1.7 million shares or 1.43% of the shares outstanding. The top two institutions that own Lam Research are J.P. Morgan Investment Management Inc., which owns 10.7 million shares or 8.97% of the shares outstanding, and AllianceBernstein LP, which owns 7.8 million shares or 6.4% of the shares outstanding.
Price Action: Lam Research is down 21.6% over the past year, underperforming the S&P 500, which is up 3.7%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $40.71 and above its 200 day moving average, which sits at $40.02.
Conclusion: It seems like the market is undervaluing the group as a whole based on what the trailing valuation metrics and analysts suggest of LRCX. The stock is relatively undervalued even after a period of market turbulence which has depressed trailing valuation metrics more than usual. Buying LRCX here would not be a bad move, especially off its pullback from the $58 level early last year. The performance of the group should continue to improve as the economy continues to strengthen.