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Lam Research: A Fundamentally Strong Stock

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Nov. 5 2015, Updated 3:04 p.m. ET

Gross margin rises quarter-over-quarter

Gross margin for Lam Research (LRCX) in 3Q15 was 45.1% compared to 43.3% in 2Q15, and 43.8% in 3Q14. The firm’s operating margin in 3Q15 was 21% compared to 12.9% in 2Q15, and 14.6% in 3Q14. Net margin for 3Q15 also rose from ~8.9% in 2Q15 and ~12.2% in 3Q14 to 18% in 3Q15. In comparison, gross margin for KLA-Tencor (KLAC) and Applied Materials (AMAT) were ~57.3% and ~40.9%, respectively, for 2Q15.

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High cash-to-debt ratio

Cash-to-debt ratio measures the financial strength of a company. Lam research’s cash-to-debt ratio in 3Q15 was 1.73x, higher than the industry median of 1.71x. Lam Research’s interest coverage ratio, determining how easily the company can pay interest expenses on outstanding debt, is low at 10.70x.

Current and quick ratio

The firm’s current ratio was 2.38x, higher than the industry median of 2.20x. Lam Research’s quick ratio was 2.02x, compared to the industry median of 1.7x. Current and quick ratios measure a company’s ability to pay short-term obligations.

Shareholder value

Over the past five years, the revenue growth per share for the firm has been 8.7%. During the same period, its EBITDA [1. earnings before interest, tax, depreciation, and amortization] growth and book value growth stood at 5.2% and 16.9%, respectively.

In the past 12 months, Lam Research’s revenue growth per share, EBITDA, and free cash flow rose by 12.8%, 0.8%, and 2.5%, respectively.

Lam Research constitutes ~3.1% of the iShares PHLX Semiconductor ETF (SOXX) and ~1.7% of the VanEck Vectors Semiconductor ETF (SMH).

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