Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Is Applied Materials Making Money?

daniel , , , ,

Many people believe that equipment makers such as Applied Materials (NASDAQ: AMAT) are value investments. Conversely, Applied Materials is making less money in 2020. With that in mind, some of the more established brokerages might have contrasting beliefs but ultimately it boils down to solid research and good judgement.

For example, Applied Materials’ quarterly revenues fell from $4.162 billion on 31 January 2020 to $3.957 billion on 30 April 2020. Additionally, Applied Materials’ quarterly gross profit fell from $1.858 billion to $1.749 billion in the same period.

However, Stockrow reports that Applied Materials revenue growth rate grew from 10.9% in the quarter ending on 31 January 2020 to 11.81% in the last quarter. Applied Materials’ revenue growth rate went from -0.13% on 31 October 2019 to 10.9% on 31 January 2020.

Thus, Applied Materials is experiencing high revenue growth but making less money. Hence, Applied Materials makes more money because its revenue is growing.

Applied Materials is making Less Money

Yet, Applied Materials quarterly operating income fell from $1.042 billion to $932 million between 31 January 2020 and 30 April 2020. Additionally, Applied Materials’ quarterly common net income fell from $892 million to $755 million in the same period.

Moreover, Applied Materials’ operating cash flow fell from $987 million on 31 January 2020 to $635 million on 30 April 2020. In contrast, Applied Materials’ ending cash flow fell from $3.424 billion to $1.972 billion during the same period.

Additionally, Applied Materials financing cash flow rose from -$530 million to $1.172 billion in the same months. Hence, Applied Materials is generating less cash. In contrast, Applied Materials’ investing cash flow rose from -$162 million on 31 January 2020 to $165 million on 30 April 2020.

Interestingly, I think Applied Materials is borrowing more money. The cash generated by Applied Materials’ financing grew from -$530 million to $1.172 billion in the last two quarter. Cash from financing shows how much money Applied Materials’ borrowed.

Applied Materials has More Cash

Notably, Applied Materials has more cash available. Applied Materials cash and short term investments grew from $3.96 billion on 31 January 2020 to $5.704 billion on April 30, 2020.

I think Applied Materials is a cash rich company with a high margin of safety. I believe Applied Materials has a high margin of safety because of its growth rate and the cash it generates.

Is Applied Materials a Good Stock?

Applied Materials Inc. (NASDAQ: AMAT) is cheap when compared to NVIDIA (NASDAQ: NVDA).

For instance, Mr. Market paid $56.36 for AMAT on 29 May 2020. Astonishingly, Mr. Market paid $354.27 for a share of NVDA on the same day. Yet, both NVIDIA and Applied Materials are chip makers.

The difference is NVIDIA specializes in graphics processor units (GPUs) and the chips robots and artificial intelligence (AI) runs on. Meanwhile, Applied Materials manufactures a variety of unsexy products including solar cells, semiconductors, displays, and automation software.

Additionally, games and streaming video operate on NVIDIA’s graphics-processor units. Hence, Applied Materials has some value-investment characteristics.

Conversely, Applied Materials’ share price has shrunk in 2020. In detail, AMAT began 2020 at $62.20 on 2 January 2020. That price fell to $37.99 on 20 March 2020, but rose to $54.39 on 23 May 2020 to $56.34 on 29 May 2020.

Therefore, AMAT offers some protection from the coronavirus economic collapse. However, the price shows Mr. Market has limited faith in Applied Materials.

Is Applied Materials a Good Dividend Stock

One reason for hardware stocks’ popularity with value investments is that they pay dividends, unlike most tech shares.

For example, Applied Materials (NASDAQ: AMAT) paid a 22₵ dividend on 20 May 2020. That dividend has grown by 1₵ in 2020. Applied Materials paid a 21₵ dividend on 18 February 2020.

Dividend.com credits Applied Materials with two years of dividend growth. Overall, Applied Materials paid a dividend yield of 1.56%, an annualized payout of 88₵, and a payout ratio of 23.10% on 29 May 2020.

Thus, Applied Materials is a good cheap dividend stock with a growing business. I think investors looking for a cheap and safe technology investment with a dividend need to investigate Applied Materials.