Investidea: Applied Materials, because there is still a fuse

Инвестидея: Applied Materials, потому что есть еще запал

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. Сама AMAT в основном занимается проектированием и сборкой означенной продукции из компонентов, which are produced by other companies. Подробный разбор бизнеса AMAT мы уже публиковали, 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.

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Not very expensive. Компания не выглядит переоцененной: 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.

Как по мне, so the company may well be attacked by some activist investor and demand a five-fold increase in payments. Или разделить компанию на несколько частей — от чего инвесторы могут здорово выиграть, потому как по отдельности разные части компании могут показывать рост даже больше единой компании.

Probability is very low, но ее следует иметь в виду: AMAT looks like a company, из которой охочий до наживы шакал-активист может выжать кучу денег.

Инвестидея: Applied Materials, потому что есть еще запал

What can get in the way

Concentration. According to the annual report, at the company 20% выручки приходится на 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, деталей и сырья может подпортить финансовый результат AMAT, because it is highly dependent on the timely delivery of third party components.

Однажды в Китае. According to the annual report, 33% revenue AMAT makes in China. Final share of the PRC, in fact, above, поскольку на этой стране замкнуты производственные цепочки многих высокотехнологических предприятий по всему Азиатско-Тихоокеанскому региону, который дает 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: и машины, and toys". Такими темпами они будут делать сами и собственную сложную технику в достаточном количестве — что будет проблемой для AMAT.

Accounting. The company has 13.578 billion dollars of debt, of which 6.344 billion must be repaid within a year. Денег в ее распоряжении, 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.

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Тем более что в руководстве AMAT наверняка готовятся к тому, что их китайские контрагенты со временем перейдут на китайскую же продукцию. 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:

  1. keep up 180 $. Think, we will reach this level in the next 17 Months;
  2. keep shares next 15 years in sorrow and joy.

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