Applied Materials has gotten torched over the last six months - since October 2024, its stock price has dropped 32.7% to $138.03 per share. This may have investors wondering how to approach the situation.

Following the drawdown, is now a good time to buy AMAT? Find out in our full research report, it’s free.

Why Does AMAT Stock Spark Debate?

Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ:AMAT) is the largest provider of semiconductor wafer fabrication equipment.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Applied Materials grew its sales at an impressive 13% compounded annual growth rate. 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.

2. Stellar ROIC Showcases Lucrative Growth Opportunities

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Applied Materials’s five-year average ROIC was 47.1%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

One Reason to be Careful:

Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Applied Materials’s revenue to rise by 4.4%. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector. At least the company is tracking well in other measures of financial health.

Final Judgment

Applied Materials’s merits more than compensate for its flaws. With the recent decline, the stock trades at 14.5× forward price-to-earnings (or $138.03 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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