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Over the past six months, KLA Corporation’s shares (currently trading at $671.01) have posted a disappointing 15.9% loss while the S&P 500 was down 7.7%. This might have investors contemplating their next move.
Given the weaker price action, is now the time to buy KLAC? Find out in our full research report, it’s free.
Why Is KLAC a Good Business?
Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ:KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, KLA Corporation grew its sales at an excellent 15.5% compounded annual growth rate. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
2. Operating Margin Reveals a Well-Run Organization
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
KLA Corporation has been a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 34.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
KLA Corporation has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 31.8% over the last two years.
Final Judgment
These are just a few reasons KLA Corporation is a rock-solid business worth owning. With the recent decline, the stock trades at 23.4× forward price-to-earnings (or $671.01 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.