Background and history
Search Lam (NASDAQ: LRCX) is a wafer fabrication semiconductor equipment company founded in 1980 by Silicon Valley scientists. Semiconductor equipment names should be defined to benefit from high global demand for semiconductors. The United States is currently experiencing a shortage of semiconductors and companies like Lam Research are the solution in the United States. Wafer fabrication equipment is specifically used to manufacture semiconductors that will be used in microprocessors in consumer electronics, from computers to radios. The usefulness of Lam Research’s products will continue to grow as demand continues to grow. From the Chinese Communist Party’s increase in overall semiconductor spending to increased R&D spending by semiconductor companies, there are a variety of different customers who need to purchase Lam Research products. .
Demand for products is still high
There is a high demand for products due to the high demand for consumer electronics. Throughout the pandemic, people have become increasingly dependent on the internet and the demand for consumer electronics has increased. From the Nintendo Switch to the MacBook Pro, the industry was in high demand and semiconductor companies needed new equipment to meet the rapidly growing technology of these products. Overall, Lam Research offers high-end products and the trail is long due to the strengths of the product portfolio.
There are short-term macro factors that can drive long-term earnings momentum for Lam Research. How the company decides to monetize the recent increase in industry funding will determine its fate for the foreseeable future. I like the business opportunities and believe Lam Research is a solid semiconductor equipment company with a high-quality product portfolio that can succeed.
The diversity of revenue streams is a strong sign of industry-specific risk isolation. This means that there are a variety of flows even if one area of the supply chain is affected. This diversity gives the company a unique risk advantage over its competitors. Overall, exposure to China could become problematic as tensions escalate going forward. As China represents a considerable portion of the portfolio, the company should seek to further penetrate the US market and the European market.
The updated guidance appears to be giving investors a solid current outlook. The low operating margin of 30% is a high standard in the industry, as the semiconductor equipment industry can have high costs due to constant innovation. Lam Research has streamlined much of its portfolio to easily adapt to future industry changes.
The operational force will be important in the profits
Retail investors and analysts should be aware of the company’s operational performance. High operating margins along with strong earnings results are a sign of a healthy and expanding operation. This should be taken into account and the Lam Research multiple should increase because of it. I think when investors see the value of stocks, money will flow into the stock. Overall, the secular growth story may occur due to high industry spending.
The company’s gross margin is quite high and in line with many of its peers. In future earnings reports, I will pay close attention to gross margin growth, as there could be room for improvement if the company continues to invest more in R&D. fundamental factors at play drive earnings growth. Lam Research will continue to be a solid choice for future rounds.
Cash flow increased due to strong gross operating margins. This has helped to strengthen the balance sheet and create a solid foundation for the company’s future moves. This opens up opportunities for Lam Research management to decide whether to buy back shares or make an acquisition. There are a variety of focus areas that could generate shareholder value. This would continue to strengthen the case for growth, as Lam Research shares.
Low risk due to macro dynamics
I like stocks at these levels because there is relatively little downside risk to stocks. The shares have currently been sold due to possible rate hikes. However, investors don’t know how many rate hikes there will be. 2,3,4 analysts and institutions can only make projections. These factors are expected to be relatively unimportant to demand for semiconductor cycle equipment. As long as there is continuous technological innovation, there will be value in Lam Research’s products. Overall, there are strong tailwinds for secular growth that will give stocks the momentum they need to reach new heights.
Assessment needs Future reassessment
At current levels, the valuation needs to be reassessed. Lam Research performed well on several fronts: gross margin, free cash, and earnings momentum. I think it’s fair that I choose peers with similar valuations to Lam Research. KLA Corp. (NASDAQ: KLAC) is a leading semiconductor equipment company with major products that are needed to perform a variety of major semiconductor operations. The last competitor I chose is Applied Materials (NASDAQ: AMAT). The company is a supplier of semiconductor equipment for large multinational customers. I must disclose that I am neutral regarding the materials applied. Here is my article on the company.
Overall, Lam Research has underperformed other major semiconductor equipment companies over the past 12 months. This is due to the weak investor enthusiasm behind the title. As a more secular cycle among semiconductors emerges, Lam Research could become a much better-known stock. Their product portfolio powers many leading semiconductor companies around the world. At today’s prices, Lam Research offers an excellent opportunity for growth and value investors.
Currently, Lam Research offers a much lower EV to Sales ratio than its peers. I think that’s fair because Lam Research has strong gross operating margins and strong overall growth. When analysts realize this, Lam Research should be re-evaluated as a fundamental growth story with room to maneuver.
Conclusion and scoring
Lam Research presents an optimal risk-reward ratio for investors. Value investors may consider that the company has a 1% dividend yield, and growth-oriented investors may appreciate the continued ROE and earnings momentum. I rate Lam Research Bullish on expectations of a continued rise in semiconductor stocks. I look forward to analyzing Lam Research in the coming quarters.