Applied Materials Stock Leaps 35% In One Month, Should You Buy The Stock?

We believe there are only a couple of things to fear in AMAT stock given its overall Strong operating performance and financial condition. This is aligned with the stock’s High valuation because of which we think it is Fairly Priced. Here is our multi-factor assessment.

That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure.

Let’s get into details of each of the assessed factors but before that, for quick background: With $176 Bil in market cap, Applied Materials provides manufacturing equipment, services, and software for semiconductor chip fabrication and display technologies, including liquid crystal displays and organic light-emitting diodes.

[1] Valuation Looks High

This table highlights how AMAT is valued vs broader market. For more details see: AMAT Valuation Ratios

[2] Growth Is Moderate

• Applied Materials has seen its top line grow at an average rate of 4.4% over the last 3 years
• Its revenues have grown 6.6% from $27 Bil to $29 Bil in the last 12 months
• Also, its quarterly revenues grew 7.7% to $7.3 Bil in the most recent quarter from $6.8 Bil a year ago.

This table highlights how AMAT is growing vs broader market. For more details see: AMAT Revenue Comparison

[3] Profitability Appears Very Strong

• AMAT last 12 month operating income was $8.6 Bil representing operating margin of 30.1%
• With cash flow margin of 26.9%, it generated nearly $7.7 Bil in operating cash flow over this period
• For the same period, AMAT generated nearly $6.8 Bil in net income, suggesting net margin of about 23.9%

This table highlights how AMAT profitability vs broader market. For more details see: AMAT Operating Income Comparison

[4] Financial Stability Looks Very Strong

• AMAT Debt was $6.8 Bil at the end of the most recent quarter, while its current Market Cap is $176 Bil. This implies Debt-to-Equity Ratio of 3.8%
• AMAT Cash (including cash equivalents) makes up $7.0 Bil of $34 Bil in total Assets. This yields a Cash-to-Assets Ratio of 20.5%

[4] Downturn Resilience Is Weak

AMAT has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• AMAT stock fell 55.4% from a high of $167.00 on 14 January 2022 to $74.41 on 17 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 19 January 2024
• Since then, the stock increased to a high of $254.97 on 10 July 2024 , and currently trades at $220.30

 
2020 Covid Pandemic

• AMAT stock fell 43.6% from a high of $67.41 on 19 February 2020 to $37.99 on 20 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 14 August 2020

 
2008 Global Financial Crisis

• AMAT stock fell 64.5% from a high of $22.96 on 8 August 2007 to $8.14 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 7 July 2014

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read AMAT Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.