KLA CORP (NASDAQ:KLAC): A Prime Example of Affordable Growth in the Semiconductor Sector

Growth investing often focuses on companies with strong earnings or revenue expansion, but valuations can rise quickly in popular stocks. The "Affordable Growth" method balances these factors by finding stocks with good growth potential that trade at fair prices, backed by solid profitability and financial strength. KLA CORP (NASDAQ:KLAC) appears to fit this strategy, based on ChartMill's fundamental analysis.

Growth: A Key Factor for KLAC

The company’s Growth rating of 7/10 highlights its ability to maintain steady expansion, an important consideration for growth investors. Key points from the fundamental report include:

• Earnings Per Share (EPS) growth of 35.37% over the past year, with a five-year annual growth rate of 22.88%.
• Revenue growth of 20.33% in the last year, supported by a long-term average annual increase of 16.52%.
• Expected future EPS growth of 14.51%, suggesting continued progress despite a slight slowdown from past highs.

While future revenue growth is forecasted to drop to 9.87%, KLAC’s track record and ongoing presence in the semiconductor equipment industry keep it aligned with the "affordable growth" approach.

Valuation: Balancing Price and Potential

A common risk in growth investing is paying too much for future earnings. KLAC’s Valuation rating of 5/10 indicates a fair price relative to its growth outlook:

• The P/E ratio of 29.54 is lower than the industry average (43.80), making it more affordable than 68% of semiconductor competitors.
• Its forward P/E of 26.59 matches the sector average, while staying below the S&P 500’s forward P/E of 37.64.
• The PEG ratio (factoring in growth) is favorable, suggesting KLAC’s earnings growth may support its valuation.

For investors looking for growth at a reasonable price, KLAC’s valuation metrics indicate it isn’t overpriced despite its strong results.

Profitability and Financial Health: Strengthening the Case

Growth stocks must also show financial stability to minimize risks. KLAC performs well here:

• Profitability rating of 9/10, fueled by strong margins (Operating Margin of 41.73%, better than 97% of peers) and high returns on capital (ROIC of 37.60%).
• Health rating of 6/10, reflecting acceptable debt levels (Debt/FCF of 1.68 years) but a higher Debt/Equity ratio (1.47). The Altman-Z score of 8.85 points to low bankruptcy risk.

These factors lower the chance of operational or financial issues disrupting growth.

Why These Metrics Matter for Affordable Growth

The strategy favors companies that:

1. Grow faster than the market (KLAC’s double-digit EPS and revenue growth).
2. Trade at fair valuations (KLAC’s P/E ratios are reasonable compared to peers and growth rates).
3. Maintain strong profitability and financial health (KLAC’s high margins and controlled debt).

By meeting these criteria, KLAC offers a strong option for investors seeking growth without excessive costs.

For more stocks that match this strategy, check the Affordable Growth screen results.

Disclaimer: This analysis is not investment advice. Always conduct your own research or consult a financial professional before making investment decisions.