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Should Value Investors Pick Lam Research (LRCX) Stock?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Lam Research Corporation (LRCX - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Lam Research has a trailing twelve months PE ratio of 18.32, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.28. If we focus on the stock’s long-term PE trend, the current level puts Lam Research’s current PE ratio somewhat above its midpoint (which is 16.42) over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified Computer and Technology sector’s trailing twelve months PE ratio, which stands at 21.90. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Lam Research has a forward PE ratio (price relative to this year’s earnings) of just 14.02, so it is fair to say that a slightly more value-oriented path may be ahead for Lam Research stock in the near term too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Lam Research’s PEG ratio stands at just 1.21, compared with the Zacks Computer and Technology sector average of 1.76. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Lam Research currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes LRCX a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 13.20, which is much better than the industry average of 17.87. Clearly, LRCX is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Lam Research might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘D’. This gives LRCX a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. While the consensus estimate for the full-year 2017 increased 3.9% in the past two months, the full-year 2018 estimate has inched up by 0.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This positive trend signifies somewhat bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
Lam Research is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (top 2% out of more than 250 industries) and strong Zacks Rank, LRCX looks like a strong value contender. In fact, over the past one year, the Zacks Semiconductor Equipment – Wafer Fabrication sector has significantly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Should Value Investors Pick Lam Research (LRCX) Stock?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Lam Research Corporation (LRCX - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Lam Research has a trailing twelve months PE ratio of 18.32, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.28. If we focus on the stock’s long-term PE trend, the current level puts Lam Research’s current PE ratio somewhat above its midpoint (which is 16.42) over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified Computer and Technology sector’s trailing twelve months PE ratio, which stands at 21.90. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Lam Research has a forward PE ratio (price relative to this year’s earnings) of just 14.02, so it is fair to say that a slightly more value-oriented path may be ahead for Lam Research stock in the near term too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Lam Research’s PEG ratio stands at just 1.21, compared with the Zacks Computer and Technology sector average of 1.76. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Lam Research currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes LRCX a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 13.20, which is much better than the industry average of 17.87. Clearly, LRCX is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Lam Research might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘D’. This gives LRCX a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. While the consensus estimate for the full-year 2017 increased 3.9% in the past two months, the full-year 2018 estimate has inched up by 0.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Lam Research Corporation Price and Consensus
Lam Research Corporation Price and Consensus | Lam Research Corporation Quote
This positive trend signifies somewhat bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
Lam Research is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (top 2% out of more than 250 industries) and strong Zacks Rank, LRCX looks like a strong value contender. In fact, over the past one year, the Zacks Semiconductor Equipment – Wafer Fabrication sector has significantly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>