When Should You Buy Lam Research Corporation (NASDAQ:LRCX)?
Today we're going to take a look at the well-established Lam Research Corporation (NASDAQ:LRCX). The company's stock saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Lam Research’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Lam Research
What's the opportunity in Lam Research?
According to my valuation model, Lam Research seems to be fairly priced at around 5.03% above my intrinsic value, which means if you buy Lam Research today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $457.32, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Lam Research’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Lam Research generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 36% over the next couple of years, the future seems bright for Lam Research. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? LRCX’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on LRCX, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Lam Research at this point in time. In terms of investment risks, we've identified 3 warning signs with Lam Research, and understanding these should be part of your investment process.
If you are no longer interested in Lam Research, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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