Applied Materials, Inc. (NASDAQ:AMAT) stock, backed by solid growth and attractive valuations, is a strong buy for the value investor as well as the growth seeker.
Shares of Applied Materials (NASDAQ:AMAT) have had a solid year in 2017. AMAT stock price is up by an impressive 41.25% year-to-date, doubling the Nasdaq Composite's performance in the same timeframe. A bull run of this kind often takes a stock into the territory of 'rich' valuations, which raises questions of profit booking and taking money off the table. However, the valuations of AMAT stock are anything but rich, and beg the question: Is AMAT stock a good buy today?
Applied Materials Q3 Earnings Testimony Of The Fundamental Momentum
The rally in AMD stock price has been supported by a strong growth in the company's fundamentals. AMAT revenue grew by 32.7% YoY in Q3 2017. Over the last 4 quarters, the company has delivered, on average, revenue growth of 40% YoY, which is proof of the fact that AMAT's various business segments are doing extremely well.
As we had noted in our recent AMAT Q3 earnings review, both the semiconductor segment as well as the display business segment are seeing strong momentum, which is expected to continue for the foreseeable future. Of particular note is the Display business, which looks set for an extremely promising future, given the rising popularity of OLED displays.
In addition to the strong top line growth AMAT has delivered, the company has also reported an expansion in the profit margins. The TTM (Trailing Twelve Months) gross profit margin has expanded by nearly 300 bps over the last one year while the TTM Net profit margin has increased from the mid-teen levels in the year ago period to the current 22.1% net margin.
A result of the strong top line growth and the profit margin expansion over the last few quarters has been impressive growth in the bottom line/earnings. Applied Materials has delivered a 114% growth in LTM (last twelve month) EPS.
AMAT Stock Currently Trades At Attractive Valuations.
It is clear that while the rally in AMAT stock price has been impressive, the growth in fundamentals has outpaced the appreciation in the stock price. As a result, AMAT stock is trading at extremely attractive valuations, even after the strong rally over the past year or so.
Applied Materials stock currently trades at a TTM price-to-earnings multiple of 16.2x, which is a significant discount to the S&P 500's 24.8x TTM multiple. Also, AMAT stock currently trades at a discount to its own historical valuations. The stock has traded at an average earnings multiple of 36x over the last 5 years, with a peak multiple of 229x and a low of 12.5x. To put it another way, at the current valuations, AMAT stock trades at the lower end of its historical valuation range.
The current Wall Street consensus expects AMAT to report FY 2018 (October 2018 ending) EPS of $3.59 a share, implying a forward valuation of 12.7x, which is at the lower end of the historic valuation range, making AMAT stock an attractive buy at current price levels. Going by the same Yahoo Finance estimates referenced above, Wall Street analysts anticipate AMAT earnings to grow at an average annual rate of 27.6% over the next 5 years. Factoring in the expected growth, AMAT stock currently trades at a forward PEG ratio of 0.46 which, according to traditional financial wisdom, implies extremely attractive valuations.
To sum up, the strong growth and the attractive valuation levels make Applied Materials stock an attractive buy for the value investor as well as growth seeker. Hence, investors seeking a good long term investment should definitely consider AMAT stock as a potential addition to their portfolio.
Looking for fundamentally strong tech stocks? Check out Amigobulls' top stock picks from the tech sector, which have beaten the NASDAQ by nearly 150%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by over 246%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.