Applied Materials Inc (NASDAQ:AMAT) – A GARP Candidate for Long-Term Investors

Applied Materials Inc (NASDAQ:AMAT) is a company that could appeal to investors seeking a balance between growth and value. The strategy of blending these two approaches—often referred to as Growth at a Reasonable Price (GARP)—focuses on companies with solid earnings growth that are not overvalued. Applied Materials fits this profile, making it a potential candidate for long-term portfolios.

Why Applied Materials Fits the GARP Approach

Strong Earnings Growth

Applied Materials has demonstrated consistent earnings growth, with a 5-year EPS growth rate of 23.21%. This aligns with Peter Lynch’s preference for companies growing at a sustainable pace—neither too slow nor excessively fast.

Reasonable Valuation

The stock trades at a P/E ratio of 16.91, below both the industry average (46.01) and the S&P 500 (28.88). Its PEG ratio (5Y) of 1.75 suggests the stock is reasonably priced relative to its historical growth. While not deeply undervalued, it avoids the overvaluation risks seen in high-growth tech stocks.

Financial Health

The company maintains a solid balance sheet with:

• Debt/Equity ratio of 0.34, indicating conservative leverage.
• Current Ratio of 2.68, showing strong liquidity to cover short-term obligations.
• ROE of 34.06%, reflecting efficient use of shareholder capital.

Industry Position

As a key supplier to semiconductor manufacturers, Applied Materials benefits from long-term demand in chip production. Its profitability metrics, including an Operating Margin of 29.22%, outperform most peers in the semiconductor equipment sector.

Fundamental Analysis Summary

Our fundamental analysis report gives Applied Materials a score of 7 out of 10, highlighting strengths in profitability and financial health. Key takeaways:

• High ROE (34.06%) and ROIC (27.05%) indicate efficient capital allocation.
• Positive cash flow and earnings over the past five years.
• Dividend growth of 12.01% annually, though the yield (1.23%) is modest.

For investors interested in similar stocks, our Peter Lynch-inspired screener provides additional candidates.

Final Thoughts

Applied Materials Inc (NASDAQ:AMAT) presents a balanced opportunity for GARP investors, combining steady growth with reasonable valuation and financial stability. While past performance is strong, future growth in semiconductor demand could further support its trajectory.