APPLIED MATERIALS INC (NASDAQ:AMAT) – A Strong Candidate for GARP Investors

APPLIED MATERIALS INC (NASDAQ:AMAT) stands out as a compelling pick for investors seeking growth at a reasonable price (GARP). The company, a key player in semiconductor manufacturing equipment, meets several criteria outlined in Peter Lynch’s investment strategy, combining steady growth, strong profitability, and a reasonable valuation.

Why AMAT Fits the GARP Approach

• Earnings Growth: AMAT has delivered an impressive 5-year average EPS growth of 23.2%, well above the 15% threshold Lynch favored. This indicates sustained profitability without excessive growth that could be unsustainable.
• Reasonable Valuation: The stock’s PEG ratio (0.82) is below 1, suggesting it is reasonably priced relative to its earnings growth.
• Strong Profitability: With a return on equity (ROE) of 35.6%, AMAT outperforms most peers in the semiconductor equipment industry.
• Healthy Balance Sheet: A debt-to-equity ratio of 0.33 and a current ratio of 2.46 reflect financial stability, aligning with Lynch’s preference for conservatively financed companies.

Fundamental Strengths

AMAT’s fundamentals are robust, earning it a rating of 7 out of 10 in our analysis. Key highlights include:

• High Profit Margins: Operating margins of 29.7% and net margins of 24.1% place it among the top performers in its sector.
• Efficient Capital Use: The company generates strong returns on invested capital (ROIC: 27.9%), indicating effective deployment of resources.
• Dividend Growth: While the yield is modest (1.12%), AMAT has increased its dividend at an average annual rate of 12% over the past decade.

For a deeper dive into AMAT’s financial health, review the full fundamental analysis report.

Our Peter Lynch Strategy screener lists more stocks that fit this investment approach and is updated regularly.

Disclaimer

This is not investment advice. The observations here are based on data available at the time of writing. Always conduct your own research before making investment decisions.