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Should Value Investors Consider Lam Research a Great Stock?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn't want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let's put Lam Research CorporationLRCX stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock's current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Lam Research has a trailing twelve months PE ratio of 14.09, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.1. If we focus on the long-term PE trend, the current level puts Lam Research's current PE ratio fairly above its midpoint. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.

Further, the stock's PE also compares favorably with the Zacks Categorized Semi-Equipment Water Fabrication industry's trailing twelve months PE ratio, which stands at 22.2. At the very least, this indicates that the stock is highly undervalued right now, compared to its peers.

We should also point out that Lam Research has a forward PE ratio (price relative to this year's earnings) of just 13.59, so it is fair to say that a slightly more value-oriented path may be ahead for Lam Research stock in the near term too.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Lam Research's PEG ratio stands at just 1.1, compared with the Zacks Categorized Semi-Equipment Water Fabrication industry average of 1.3. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Broad Value Outlook

In aggregate, Lam Research currently has a Zacks Value Style Score of 'B', putting it into the top 40% of all stocks we cover from this look. This makes Lam Research a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio (another great indicator of value) comes in at 12.59, which is far better than the industry average of 17.55. Clearly, LRCX is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Lam Research might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of 'A' and a Momentum score of 'A'. This gives LRCX a Zacks VGM score-or its overarching fundamental grade-of 'A'. (You can read more about the Zacks Style Scores here >> )

Meanwhile, the company's recent earnings estimates have been positive. The current quarter has seen four estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen five up and one down in the same time period.

This has had just a favorable impact on the consensus estimate as the current quarter consensus estimate has risen by 1.5% in the past two months, while the full year estimate has also risen significantly by 6.4%. You can see the consensus estimate trend and recent price actionfor the stock in the chart below:

Lam Research Corporation Price and Consensus

Lam Research Corporation Price and Consensus | Lam Research Corporation Quote

This positive trend is the reason why the stock has just a Zacks Rank #2 (Buy) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Lam Research is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.

Boasting a good industry rank (top 7%) and a solid Zacks Rank, the company deserves attention right now. In fact, over the past two years, the Zacks Categorized Semi-Equipment Water Fabrication industry has also clearly over performed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company's prospects, as fundamentals indicate that this stock could be a compelling pick.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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