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Should Value Investors Buy Applied Materials (AMAT) Stock?

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.

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 rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.

One stock to keep an eye on is Applied Materials (AMAT). AMAT is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock holds a P/E ratio of 13.34, while its industry has an average P/E of 16.98. Over the last 12 months, AMAT's Forward P/E has been as high as 13.93 and as low as 7.38, with a median of 10.53.

Another valuation metric that we should highlight is AMAT's P/B ratio of 5.10. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. AMAT's current P/B looks attractive when compared to its industry's average P/B of 7.94. Over the past year, AMAT's P/B has been as high as 7.23 and as low as 4.17, with a median of 4.94.

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 2.69. This compares to its industry's average P/S of 3.

Finally, investors will want to recognize that AMAT has a P/CF ratio of 10.88. 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 company's current P/CF looks solid when compared to its industry's average P/CF of 18.99. Over the past 52 weeks, AMAT's P/CF has been as high as 13.93 and as low as 7.57, with a median of 9.56.

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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