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Should Value Investors Buy Applied Materials (AMAT) Stock?

Zacks Equity Research

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company to watch right now is Applied Materials (AMAT). AMAT is currently sporting a Zacks Rank of #2 (Buy) and an A for Value. The stock is trading with a P/E ratio of 12.72, which compares to its industry's average of 16.55. Over the past year, AMAT's Forward P/E has been as high as 13.93 and as low as 7.38, with a median of 10.20.

We should also highlight that AMAT has a P/B ratio of 4.83. 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 7.76. Over the past 12 months, AMAT's P/B has been as high as 7.23 and as low as 4.17, with a median of 4.95.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. AMAT has a P/S ratio of 2.49. This compares to its industry's average P/S of 3.08.

Finally, our model also underscores that AMAT has a P/CF ratio of 10.30. 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. AMAT's P/CF compares to its industry's average P/CF of 18.30. AMAT's P/CF has been as high as 14.13 and as low as 7.57, with a median of 9.56, all within the past year.

These are only a few of the key metrics included in Applied Materials's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, AMAT looks like an impressive value stock at the moment.


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