KLA Corporation has been on fire lately. In the past six months alone, the company’s stock price has rocketed 109%, setting a new 52-week high of $260.62 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is it too late to buy KLAC? Find out in our full research report, it’s free.
Why Is KLAC a Good Business?
Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ: KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, KLA Corporation’s 15.2% annualized revenue growth over the last five years was impressive. Its growth surpassed 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. Operating Margin Reveals a Well-Run Organization
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
KLA Corporation has been a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 40%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
KLA Corporation has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 30.5% over the last two years.
Final Judgment
These are just a few reasons KLA Corporation is a high-quality business worth owning, and with the recent rally, the stock trades at 50.2× forward P/E (or $260.62 per share). Is now a good time to buy despite the apparent froth? See for yourself in our full research report, it’s free.
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