Today we have a speculative idea: take stock of Applied Materials semiconductor business (NASDAQ: AMAT), in order to earn on the growth of orders from this company.
Growth potential and validity: 18,5% behind 17 months excluding dividends; 10% per annum during 15 years including dividends.
Why stocks can go up: semiconductor shortage will not disappear soon.
How do we act: take now 153,11 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
AMAT is a supplier of products, required for the production of complex electronics. AMAT itself is mainly engaged in the design and assembly of the aforementioned products from components, which are produced by other companies. We have already published a detailed analysis of the AMAT business, so let's not repeat ourselves.
Arguments in favor of the company
It will only get better - but not for everyone. As recently noted by Volkswagen representatives, there is no reason to believe, that the situation with the availability of semiconductors will improve significantly this year. So,, Demand for AMAT products and services will remain very strong. Yes, and without a shortage of semiconductors, in principle, everything would be fine for her: modern economy requires more and more high-tech devices, so the long term outlook for AMAT also looks good.
Not very expensive. The company does not look overvalued: P / S she has a little less 6, a P / E — 23,79.
They crave. The company pays 0,96 $ dividend per share per year, what gives 0,63% per annum. The company spends $882.24 million a year on dividends - slightly less 15% her annual income.
As for me, so the company may well be attacked by some activist investor and demand a five-fold increase in payments. Or split the company into several parts - from which investors can greatly benefit, because separately different parts of the company can show growth even more than a single company.
Probability is very low, but it should be kept in mind: AMAT looks like a company, from which a profit-hungry activist jackal can squeeze a lot of money.
What can get in the way
Concentration. According to the annual report, at the company 20% revenue comes from Samsung, and also 15% — на Taiwan Semiconductor Manufacturing. A change in relationship with one of them can adversely affect the company's reporting.
Against the whole world. Logistics cost, parts and raw materials can spoil the financial result of AMAT, because it is highly dependent on the timely delivery of third party components.
Once upon a time in China. According to the annual report, 33% revenue AMAT makes in China. Final share of the PRC, in fact, above, since this country has closed production chains of many high-tech enterprises throughout the Asia-Pacific region, which gives 86% AMAT revenue. That's why, if the Americans set out to seriously crush Chinese high-tech companies, this will have an extremely negative impact on AMAT's business.
Also for long distances, over three years, the company's sales may be negatively affected by the development of China's own semiconductor industry. For, as Major Rodion Meglin said in the series "Method", "Well done Chinese. Everybody does: and cars, and toys". At this rate, they will make themselves and their own complex equipment in sufficient quantities - which will be a problem for AMAT.
Accounting. The company has 13.578 billion dollars of debt, of which 6.344 billion must be repaid within a year. Money at her disposal, basically, enough: there are 4.995 billion in accounts and 4.593 billion in debts of counterparties.
But, it seems to me, great risks, that large AMAT with a capitalization of 135.45 billion will decide to spend money on buying its smaller competitors like KLA with a capitalization of 64.53 billion and Lam Research with a capitalization of 94.79 billion.
Moreover, the AMAT leadership is probably preparing for, that their Chinese counterparties will eventually switch to Chinese products. So,, it makes sense to increase your market share. In this case, the debt burden of the company will increase, which will scare away some investors, after all, soon loans will rise in price and it will become more difficult to service them. It will also greatly reduce the likelihood of an increase in AMAT dividends..
Gaping peaks. The company's shares are currently trading near all-time highs., so there is some possibility, that they may suffer during the next stock market correction.
What's the bottom line?
You can take stock now. And then there are two options:
- keep up 180 $. Think, we will reach this level in the next 17 Months;
- keep shares next 15 years in sorrow and joy.
