Based on some of the responses and criticism I have received, I wanted to make a few points:
* It has always been my observation that in the equity finance world, you can find just as many bull arguments for a stock, as there are bear arguments. Evidence is everywhere, and most legitamate claims can be backed by a multitude of slants and spins. For example, if a company lowers their price on a product: will that increase volume and market share or erode margins? Only at the end of the quarter/year will we find out the true answer. My evidence is just as good and bad as anyone else's. But! now that I've said that, it's quite clear that the positive story is factored into the stock price, there is virtually no hedge against the uncertainty of possible problems.
* Can I predict or prove my claim that AMAT is overvalued? No. But noboby can prove the counter claim that AMAT is under or fairly valued either. Yes I can site as many articles discussing the falling prices of semiconductors and fab postponements, as anyone else can site articles of projected growth and fab expansions. The fact is nobody really knows, for if they did, they would be multi-billionaires instead of researchers and journalists. I definitely wouldn't want to bet my money on any articles or research reports, I can show you tons, megatons, of examples of unfulfilled prophecies.
* Is AMAT valued very highly, based from a historical perspective? Yes. Without a doubt. AMAT stock price - over the past few years - has performed better then every semiconductor or semiconductor equipment company that I can think of, except Intel.
I contend that AMAT, is still valued far to high, even if you were to expect exceptional sales results. Their stock, relatively speaking, has gone higher, and grown faster, in the past year then it did back in 1995 when PC and semi growth rates were known to be exploding. And I believe, 1997 is far more uncertain in terms of PC sales growth to 1995! Everybody is betting an enormous amount on the 2nd half of the year, yet why? There is no major software upgrades planned (not like '95). What will drive this explosion? Somebody better tell Microsoft we need a 128 bit OS in a hurry!
It's just that this valuation is unbelieveable - it sells at nearly a 40% premium to their sector's average - which is remarkable because they do not enjoy a monopoly or anywhere near the control of their destiny that an Intel or Microsoft has. This is something you might expect from an up and coming small CAP, not a fortune 500 giant like AMAT. Infact, it is the highest premium company in the entire semiconductor business with market cap > $10 billion dollars! It carries 12% premium to Texas Instruments and a 35% premium to SGS Thompson - who are the next closest.
Sorry about these rantings, but no I cannot prove they are valued to high. Based on comparisons between their own history, and their industry sector, I can say they seem too high to me. |
