Today we have a speculative idea: take shares in KLA's semiconductor business (NASDAQ: KLAC), in order to capitalize on the growth of his orders.
Growth potential and validity: 15% behind 14 months excluding dividends; 10% per annum during 15 years including dividends.
Why stocks can go up: this business has not yet exhausted its potential for growth.
How do we act: we take shares now by 435,11 $.
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
The company supplies equipment for the production of semiconductors, also provides services in this area.. We published an investment idea for this company, in which we discussed her business in detail, so we won't repeat ourselves here..
Main: KLA itself does not produce anything, Her job is to design, assembly and testing of equipment, and third-party companies are engaged in the production of components.
Arguments in favor of the company
This deficit will never end.. The lack of chips is gradually becoming the norm, And, given the growing dependence of the world economy on this resource, I wouldn't have expected that, that in the next few years KLA is threatened by a lack of demand for its products and services.
Furthermore, the global economy will be increasingly digitized, and the demand for the company's goods and services will only grow as, how chip makers will increase investment in the renewal of fixed assets.
Hit! The company pays 4,2 $ dividend per share per year, on which it takes about a quarter of the total profit for the past 12 Months. I think, what, given the strong growth in the margins of the company's operations this year and the positive prospects for its business, it could well increase payments by 2-3 times.
Or periodically become generous with one-time large payments in the form of special dividends in addition to those, what is already paying. So, anyway, some activist investor will think, who can attack the company in order to force it to take these actions.
Can buy. The company is well worth, but generally acceptable money: P / It's about 24,5, and capitalization is about 66 billion dollars. Very likely situation, when the company is bought, say, larger Applied Materials, who has reason to do so. Or even a private foundation.
What can get in the way
Revenge of geography. According to the annual report, 26% the company makes revenue in China. Yet 25% made in Taiwan - and considering, that this island is highly integrated into the Chinese economy, in fact, Taiwanese exports of KLA depend on orders to Taiwanese enterprises from mainland China. If Americans step up pressure on China's tech companies, this may have a sad effect on KLA reporting.
“As in the middle of the evening lights…” The company's business processes are highly dependent on the situation of its suppliers, producing the necessary components, - so rising costs of raw materials and logistics could be very bad for the KLA result for at least the next two quarters.
And if suddenly. The company also has two major clients: TSMC и Samsung. Each of them gives more 10% KLA revenue, but unknown, how much exactly. In case the relationship between KLA and one of them deteriorates, it could negatively affect her business.
"Let's not talk about money". The company has a significant amount of debt: 7,287 billion dollars, of which 2.523 billion must be repaid within a year. She has a lot of money at her disposal: 1,509 billion in accounts and 1.463 billion debts of counterparties. But still, the total amount of debt is very large and may scare away some investors., also it can interfere with the increase in dividends.
Very likely, that the company will expand its business, what can how to increase her debt burden, and adversely affect its ability to pay dividends.
No time for dragons. The company's shares are currently trading near all-time highs., so they can suffer during the next unpredictable stock correction.
What's the bottom line?
Shares can be taken now by 435,11 $. And then there are two options:
- wait, when they grow up to 500 $. Think, we will reach this level in the next 14 Months;
- keep shares next 15 years, to grow with the company's business and, let's hope, dividends.
