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Lam Research: An Unjustified Sell-Off That Has Created A Golden Buying Opportunity

Mar. 06, 2018 11:30 AM ETLam Research Corporation (LRCX)27 Comments
Michael A. Ball profile picture
Michael A. Ball


  • Lam's stock sell-off was unjustified, and management noted an excellent overall quarter, which included raised guidance.
  • The stock market decline dragged almost every stock with it, Lam research included; this was an excellent opportunity to add more shares.
  • Wall Street still bullish on LRCX, no news of any downgrades and an average price target of $230, way above the current bid.

What Happened?

Only recently, Lam Research (NASDAQ:LRCX) reported earnings per share of $4.34; this beat Wall Street's estimates by 66 cents. Along with substantial EPS numbers, they reported revenue of $2.58 billion; this is up 37.2%, beating Wall Street's estimates by $10 million.

The earnings call sounded great, and guidance looks strong. However, the stock took a turn for the worst and sold off, along with the rest of the market, unjustifiably down almost 25% - at one point - from the recent highs.

ChartLRCX data by YCharts

Many investors got spooked by the rapid decline in the company's share price, this within itself encouraged more selling. Since then, however, the stock has recovered somewhat, not to the highs of recent months, but up almost 24% from the lows. Although nothing fundamentally changed within the company when the sell-off occurred, investors soon forget about the solid fundamentals and start to think about worst-case scenarios.

Are we going into a bear market? Is the economy overheating? All these are legitimate questions people ask themselves on the way down, and they forget the main reason they purchased the stock in the first place.

If an investor bought Lam at $190 and thought they were getting a good deal, they should have stepped in at $160. I know for a fact this is easier said than done, I was one of those investors, and now I'm kicking myself. Lam was such a good buy at $190, and yet I was questioning my investment valuation methods at $160.

The stock fell all the way down to $160 - despite strong guidance from management. This is what they said:

We're expecting shipments of $3.175 billion plus or minus $125 million. We're forecasting revenue of $2.850 billion again plus or minus $125 million. We're forecasting gross margin of 46% plus or minus one

ChartLRCX PE Ratio (TTM) data by YCharts

This article was written by

Michael A. Ball profile picture
Michael A. Ball is a 5-star expert and has a call accuracy rate of 89%, with an average return per trade of 15.3% — according to Tipranks.com.The goal is to seek out investments that by nature will be around for a very long time. Buffett often describes this as an economic moat — an unpenetrable business with a clear edge over its competitors.We often hear the term invest with confidence. When you buy a business that you know will be around for a long time, you have an edge in the market, you have time. Regardless of all the market noise, you should always have confidence in your investments.Putting your money in new fast-growing companies can be exciting and rewarding, but extremely risky.

Analyst’s Disclosure: I am/we are long LRCX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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