Up almost 3.5x from its low in March 2020, at the current price of $637 per share, we believe Lam Research Corporation stock (NASDAQ: LRCX) has further upside potential. Lam Research, a semiconductor processing equipment manufacturer, has seen its stock rise from $187 to $637 off its March 2020 low, much more than the S&P which increased by over 85% from its lows. Further, the stock is up almost 90% from the level it was at before the pandemic. However, we believe that Lam Research stock could rise almost 10% to set fresh highs above $700, driven by expectations of continuing demand growth and strong Q3 2021 results. Our dashboard What Factors Drove 368% Change In Lam Research Stock Between 2018 And Now? has the underlying numbers behind our thinking.
Lam Research stock’s rise since late 2018 came despite a 9% drop in revenues from $11.1 billion in FY 2018 to $10 billion in FY 2020 (Lam’s fiscal year ends in June). Net margins rose from 21.5% to 22.4% over this period, and combined with a 10% drop in the outstanding share count, EPS (earnings-per-share) rose 6% from $14.73 to $15.55 over this period.
Further, Lam’s P/E (price-to-earnings) multiple rose from 9x in 2018 to 30x by 2020 end, and has since risen to 41x currently. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of coronavirus and the resulting lockdowns affected semiconductor demand in early 2020, but things have improved since. Demand for Lam’s semiconductor processing equipment has risen, and this is evident from the company’s Q3 2021 earnings, where revenue came in higher at $3.85 billion from $2.5 billion for the same period last year. Operating expenses rose at a rate slower than the growth in revenue, which led to operating margins rising from 27.7% to 31.1%. Combined with a roughly unchanged effective tax rate, EPS jumped from $3.96 to $7.51 over this period.
Additionally, with the lockdowns being lifted and the steady continued growth in demand for semiconductor equipment and integrated circuits from a variety of industries, we believe the company’s revenues stand to benefit further in the medium term. Further, if the company can successfully continue controlling expenses going forward, a rise in investor expectations could drive up the company’s P/E multiple. We believe that Lam Research stock can rise at least 10% from current levels, to set new highs above $700.
While Lam Research stock may move higher, it is helpful to know how its peers stack up. Lam Research Stock Comparison With Peers summarizes how Lam Research compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
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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.