What a brutal six months it’s been for Lam Research. The stock has dropped 32% and now trades at $72.16, rattling many shareholders. This might have investors contemplating their next move.
Following the drawdown, is now the time to buy LRCX? Find out in our full research report, it’s free.
Why Is LRCX 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. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Lam Research’s sales grew at a solid 10.4% compounded annual growth rate over the last five years. Its growth beat 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. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Lam Research’s margin expanded by 12.2 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose by more than its operating profitability. Lam Research’s free cash flow margin for the trailing 12 months was 31%.
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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Lam Research’s five-year average ROIC was 63.3%, 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. After the recent drawdown, the stock trades at 19.3× forward price-to-earnings (or $72.16 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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