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Lam Research (LRCX - Free Report) shares have traded at a higher valuation than the S&P 500 and also the industry to which it belongs. But in 2016, the shares started widening this lead, a trend that has continued through 2017.
The company’s technological prowess is a given, which can generate solid growth. But given the sharp rise in prices (evident in the charts above), it makes sense to see if the shares are overvalued.
One thing to keep in mind in this respect is the general valuation of shares. The charts below illustrate that both the S&P 500 and the industry are trading close to their respective 52-week highs. So LRCX trading in the same range isn’t an anomaly.
P/E
The forward 12 months price-to-earnings ratio for LRCX is currently 13.04 compared to the S&P 500 average of 18.24 and the X industry average of 16.91. Highs and lows are also lower. The median P/E is also lower at 13.73. Moreover, the trend lines indicate that LRCX is clearly undervalued both with respect to the S&P 500 and the industry.
P/S
The trailing 12 months price to sales ratio tells a slightly different story. The P/S ratio for LRCX is currently 3.86, which is higher than the S&P 500’s 3.15 but much lower than the X industry’s 6.25. The median of 3.34 is slightly ahead of the S&P 500’s 3.04 but well below the industry’s 5.78. The highs and lows also indicate that LRCX is overvalued with respect to the S&P 500 but undervalued with respect to the industry.
How About Its Peers?
Lam Research’s closest competitor is Applied Materials (AMAT - Free Report) so let’s consider that first. Historically, AMAT has traded well below its 52-week high, but the current level of demand has changed that. So it is also trading at around its 52-week high. AMAT’s current P/E is lower than LRCX but the median is same. Both the high of 16.50 and the low of 12.37 exceed Lam’s. This indicates a similar valuation for the two peers.
LRCX also compares favorably with ASML Holding NV (ASML - Free Report) , another semiconductor equipment maker. ASML, which is also trading very close to its 52-week high, has a current P/E of 26.68 and median P/E of 26.63, both of which are significantly higher than LRCX. The price to sales ratio tells a similar tale.
Conclusion
From the above, we can conclude that Lam Research, which carries a Zacks Rank #1 (Strong Buy) is undervalued. You can see the the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Applied Materials also has a Zacks Rank #1 while ASML is ranked #2 (Buy).
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Is Lam Research Overvalued?
Lam Research (LRCX - Free Report) shares have traded at a higher valuation than the S&P 500 and also the industry to which it belongs. But in 2016, the shares started widening this lead, a trend that has continued through 2017.
The company’s technological prowess is a given, which can generate solid growth. But given the sharp rise in prices (evident in the charts above), it makes sense to see if the shares are overvalued.
One thing to keep in mind in this respect is the general valuation of shares. The charts below illustrate that both the S&P 500 and the industry are trading close to their respective 52-week highs. So LRCX trading in the same range isn’t an anomaly.
P/E
The forward 12 months price-to-earnings ratio for LRCX is currently 13.04 compared to the S&P 500 average of 18.24 and the X industry average of 16.91. Highs and lows are also lower. The median P/E is also lower at 13.73. Moreover, the trend lines indicate that LRCX is clearly undervalued both with respect to the S&P 500 and the industry.
P/S
The trailing 12 months price to sales ratio tells a slightly different story. The P/S ratio for LRCX is currently 3.86, which is higher than the S&P 500’s 3.15 but much lower than the X industry’s 6.25. The median of 3.34 is slightly ahead of the S&P 500’s 3.04 but well below the industry’s 5.78. The highs and lows also indicate that LRCX is overvalued with respect to the S&P 500 but undervalued with respect to the industry.
How About Its Peers?
Lam Research’s closest competitor is Applied Materials (AMAT - Free Report) so let’s consider that first. Historically, AMAT has traded well below its 52-week high, but the current level of demand has changed that. So it is also trading at around its 52-week high. AMAT’s current P/E is lower than LRCX but the median is same. Both the high of 16.50 and the low of 12.37 exceed Lam’s. This indicates a similar valuation for the two peers.
LRCX also compares favorably with ASML Holding NV (ASML - Free Report) , another semiconductor equipment maker. ASML, which is also trading very close to its 52-week high, has a current P/E of 26.68 and median P/E of 26.63, both of which are significantly higher than LRCX. The price to sales ratio tells a similar tale.
Conclusion
From the above, we can conclude that Lam Research, which carries a Zacks Rank #1 (Strong Buy) is undervalued. You can see the the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Applied Materials also has a Zacks Rank #1 while ASML is ranked #2 (Buy).
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>