Should You Buy Applied Materials (AMAT) Stock As It Hits New High?

Shares of Applied Materials AMAT soared to a new all-time high on Wednesday after the company detailed its plans for the future at its annual analyst day, leaving some investors to wonder: should you buy AMAT as it hits a new peak?

Recent Moves

Just last week, RBC Capital analyst Amit Daryanani upgraded AMAT to “Outperform” from “Sector Perform” and upped its price target from $48 to $55 per share. The analyst cited an optimistic outlook about Applied Materials’ semiconductor market dominance as a major reason for the renewed confidence.

Now, one day after Applied Materials celebrated its 45-year anniversary as a public company by ringing the Nasdaq opening bell, the company announced a new three-year financial outlook.

Applied Materials projects to post non-GAAP adjusted earnings of $5.08 per share in fiscal 2020—the company posted EPS of $1.75 in its most recent fiscal year. AMAT also announced that it expects its service sector to experience a compound annual growth rate of 15% for the next three years, reaching revenues of $4.5 billion by 2020.

“Continued strong demand for its equipment, higher process complexity and greater demand for comprehensive service agreements,” will help lead to this growth, according to a company statement.

The company also authorized a new $3 billion share repurchase plan to help return cash to shareholders and invest in new technologies that should help it push forward as the Internet of Things ecosystem grows and artificial intelligence proliferates.

“Our markets are strong and getting stronger. New technology inflections like A.I. and big data will increase demand for high-performance semiconductor processing and storage,” CEO Gary Dickerson said in a statement. “With the industry’s broadest and most innovative technologies, Applied Materials helps accelerate customer roadmaps by enabling chips and displays to be built in entirely new ways.”

Now let’s take a look at some of the semiconductor giant’s fundamentals to see if it might be a good investment.

Fundamentals

Studies have shown that tapping into an average stock in a strong industry can be a better option than picking an outstanding stock in a relatively poor-performing industry. Therefore, Applied Materials’ position in the ever-growing “Semiconductor Equipment – Wafer Fabrication” industry, which currently rests in the top 5% of the 265 industries tracked by Zacks, might incite some investors.

On top of that, Applied Materials is currently a Zacks Rank #1 (Strong Buy) stock that also sports an overall VGM grade of “A.”

The company is currently trading at 14.36x earnings, which marks a discount compared to the S&P 500 and industry averages. Applied Materials’ P/S ratio of 3.56 is not outstanding, but it outpaces its industry’saverage of 4.46. Also, AMAT’s Price/Cash Flow ratio of 21.22 matches the industry’s average.

Applied Materials’ Current Ratio of 2.91 falls within the generally accepted “good” range and also fares well compared to the industry’s ratio. The company’s 33.93% projected sales growth for the current year tops the 27.95% average in this booming industry. Additionally, AMAT’s 40.74% Return on Equity gives it an advantage over the industry’s 36.19% and helps show that the company is putting investors’ money to good use.

After seeing its stock pop nearly 55% over the last year, the company’s share price could be ready to keep climbing. Based on our current consensus estimates, the company’s earnings are set to jump 36.93% in the current quarter and skyrocket 84.32% for the year.

Maybe more importantly than Applied Materials’ staggering earnings projections, the company has experienced a ton of earnings estimate revisions recently—a metric that Zacks weighs heavily in determining the Zacks Ranks.

Applied Materials has experienced five upward earnings estimate revisions for its current quarter, three for the next quarter, six for the full year, and four for the following year—all within the last 60 days.

Bottom Line

This semiconductor equipment company seems poised to expand its business over the next few years and invest in new sectors of the economy that will only grow, including the IoT and AI. Along with its Zacks Rank #1 (Strong Buy) and vast amount of earnings estimate revisions, Applied Materials is certainly a stock to consider, even as it rests near a new high.

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