The past six months have been a windfall for Lam Research’s shareholders. The company’s stock price has jumped 54%, setting a new 52-week high of $120.61 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is it too late to buy LRCX? Find out in our full research report, it’s free.
Why Is Lam Research a Good Business?
Founded in 1980 by David Lam, the man who pioneered semiconductor etching technology, Lam Research (NASDAQ: LRCX) is one of the leading providers of wafer fabrication equipment used to make semiconductors.
1. Skyrocketing Revenue Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Lam Research’s 12.9% annualized revenue growth over the last five years was impressive. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
2. Operating Margin Reveals a Well-Run Organization
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Lam Research has been a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 30.5%.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Lam Research’s five-year average ROIC was 64.1%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
These are just a few reasons why we're bullish on Lam Research, and with the recent surge, the stock trades at 29.8× forward P/E (or $120.61 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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