Let's talk about the popular KLA Corporation (NASDAQ:KLAC). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on KLA’s outlook and valuation to see if the opportunity still exists.
What's the opportunity in KLA?
According to my valuation model, the stock is currently overvalued by about 26%, trading at US$296 compared to my intrinsic value of $234.70. This means that the opportunity to buy KLA at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since KLA’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will KLA generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. KLA's earnings over the next few years are expected to increase by 60%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in KLAC’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe KLAC should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on KLAC for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for KLAC, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into KLA, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for KLA and you'll want to know about these.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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