“The trend is your friend” is an age old saying that most momentum investors live by. The main concerns in momentum investing are simple: when will the trend end if a stock is going strong, and when will it start for an up-and-coming stock. Today we’ll look into LAM Research (LRCX - Free Report) to see if we can find a solution for this particular company.
LAM Research is a leading semiconductor company based in Fremont, California. Known for its wafer fabrication equipment and services, the company has been a strong stock for the past five years and on. It currently holds a “B” grade in Value, a “C” grade in Growth, and an “A” grade in Momentum. This earns LAM Research a “B” overall VGM grade in our Styles Score System.
LAM Research has been holding strong in the Style Scores, but the key factor is its “A” grade in the Momentum category. Let’s take a look at what the stock has done to deserve this mark.
A Closer Look
LAM Research’s stock price has been on the up-and-up for a considerably long span of time, and all signs point to more of this. Five years ago, its stock was at $41.81 per share. A 461% increase in price over that span has shown just how strong the momentum of this stock has been over this longer period of time.
This past year alone, stock prices increased 90% from $120.60 to $228.65 per share, marking the highest it’s been since the company went public.
There have been several concerns in regards to recent drops in the stock, but LAM Research always seems to bounce back. In November of last year, shares were priced at $218.91, and dropped to $184.23 by early December, only to return to $215.07 by mid-January of this year. Following this high, the stock plummeted to $162.23 in a matter of weeks, again only to return to its peak price of $228.56 in early March.
These fluctuations may scare some investors, but considering that LAM Research has repeatedly stabilized, even exceeding its highest price after these drops, helps to prove that its shares are stable. Couple this with the fact that the tech industry as a whole has been in a slump over the past few weeks, and it is quite impressive the company has been able to do what it is doing.
Cash Flow/ Share can also be a strong indicator of stock prices. LAM Research yields $13.19 in cash per share, almost twice its industry average of $6.33/share. This sheds a positive light on the state of the business as is, and in the time to come.
For those momentum investors who prefer to ride a trend into the long run, LAM Research’s EPS Growth for the next three to five years is expected to reach an annualized rate of 17.9%, meaning investors can feel secure knowing that any short- term drops might be overridden in the long run.
Another great bonus to consider is that, despite its amazing statistics and domination over its competitors in the industry in a number of categories, LAM Research’s P/E of 11.6 is still under the industry average of 12.3. Growth investors will usually pay a high price for investments like these, but for LAM Research there is no need.
LAM Research holds a Zacks Rank #2 (Buy). It trades for a fair price relative to the industry and has numbers to support its stability. Its stock price increase, cash flow per share, and expected EPS Growth for the next three to five years suggest its share price will continue to rise. LAM Research appears to be a solid momentum option for both the short and long run investor.
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