Applied Materials Inc (NASDAQ:AMAT): A Peter Lynch GARP Investment Analysis

Investment methods that focus on finding good companies trading at acceptable prices have long been preferred by investors looking for lasting long-term returns. One such method, made famous by well-known fund manager Peter Lynch, focuses on locating companies with steady but controlled expansion, sound financial condition, and appealing prices. This system, often grouped as Growth at a Reasonable Price (GARP), steers clear of the far ends of pure growth or strict value investing by looking for businesses that show reliable profit increases without extreme risk-taking. The method uses particular financial filters to find candidates deserving of more study for a long-term portfolio.

Meeting Peter Lynch Criteria

Applied Materials Inc (NASDAQ:AMAT) appears as an interesting candidate when measured against main Peter Lynch investment measures. The semiconductor equipment maker shows a number of traits that match the GARP idea:

• Sustainable Earnings Growth: The company has reached a five-year EPS growth rate of 23.21%, fittingly inside Lynch's chosen span of 15-30%. This limit makes sure companies are expanding sufficiently without chasing unmaintainable growth that frequently results in future letdowns.

• Acceptable Valuation: With a PEG ratio of 0.98 based on past growth, AMAT trades under Lynch's limit of 1.0. This measure is important as it contrasts the stock's P/E ratio to its growth rate, spotting companies that might be priced low compared to their growth possibilities.

• Strong Profitability: The company's return on equity of 35.03% greatly surpasses Lynch's 15% minimum standard. High ROE shows efficient use of shareholder money and lasting market strengths, important factors for long-term investors.

• Financial Condition: AMAT keeps a current ratio of 2.50, much higher than the 1.0 limit, showing sufficient cash to cover near-term debts. The debt-to-equity ratio of 0.32 fits well under Lynch's chosen highest point of 0.6, showing a careful financial setup.

Fundamental Assessment

A full fundamental analysis of Applied Materials shows a company with excellent operational ability next to some price thoughts. The analysis gives AMAT a total score of 7 out of 10, with especially good results in profitability (9/10) and financial condition (7/10).

The company shows exceptional returns on invested money and equity, greatly beating most industry rivals. Profit margins have displayed betterment in recent years, with operating margins over 30% putting AMAT with the best performers in the semiconductor equipment field. Financially, the company maintains a strong balance sheet with an Altman-Z score suggesting very low failure risk and controllable debt amounts relative to cash production.

While the valuation score of 4/10 implies the stock is not priced low, AMAT trades at a lower price than many industry competitors on several measures. The forward P/E ratio matches closely with the wider market average, possibly showing fair value considering the company's quality traits. Growth measures display strong past performance with some slowing predicted in next years, though estimated growth rates stay acceptable.

Investment Thoughts

For investors using a GARP method, Applied Materials offers an interesting example in weighing quality against price. The company's leading role in semiconductor production equipment gives contact to several technology growth areas, including artificial intelligence, IoT, and advanced computing. This important placement backs the company's steady results through industry phases.

The modest dividend yield of 0.92% might not attract income-seeking investors, though the company has built a dependable history of dividend increases. More important for total return possibility is the company's share buyback plan, which Lynch specifically liked as a way of giving value to shareholders.

Finding More Possibilities

Applied Materials stands for just one possible candidate found through the Peter Lynch investment structure. Investors curious about locating other companies that match these strict rules can view the full screening outcomes for more study and investigation.

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice, recommendation, or endorsement of any security. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.