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Is Applied Materials (AMAT) Stock Undervalued Right Now?

Zacks Equity Research

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One company to watch right now is Applied Materials (AMAT). AMAT is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock is trading with a P/E ratio of 14.75, which compares to its industry's average of 25.38. AMAT's Forward P/E has been as high as 18.56 and as low as 8.81, with a median of 14.74, all within the past year.

We also note that AMAT holds a PEG ratio of 1.08. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. AMAT's industry has an average PEG of 2.46 right now. Over the last 12 months, AMAT's PEG has been as high as 3.71 and as low as 0.89, with a median of 1.93.

Another notable valuation metric for AMAT is its P/B ratio of 6.08. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 11.24. Over the past year, AMAT's P/B has been as high as 7.19 and as low as 4.03, with a median of 5.79.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. AMAT has a P/S ratio of 3.29. This compares to its industry's average P/S of 3.78.

Finally, our model also underscores that AMAT has a P/CF ratio of 16.83. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 32.85. Over the past year, AMAT's P/CF has been as high as 19.55 and as low as 10.60, with a median of 15.30.

These figures are just a handful of the metrics value investors tend to look at, but they help show that Applied Materials is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, AMAT feels like a great value stock at the moment.


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