Is AMAT Stock A Buy At This Discount?

Core Viewpoint - Applied Materials (AMAT) stock is considered an attractive investment due to its high margins, pricing power, and cash generation capabilities, all available at a discounted price [2] Current Developments Regarding AMAT - AMAT's stock has increased by 55% this year but is currently 31% lower based on its Price-to-Sales (P/S) ratio compared to the previous year [3] - The company achieved record annual revenue in fiscal 2025, driven by strong demand for AI-enabling technologies, advanced logic, and high-performance DRAM solutions [4] - New product launches, such as the Kinex Bonding System and Centura Xtera Epi system, are expected to enhance chip performance and yield [4] - Despite a revenue decline in Q4 and guidance indicating a year-over-year decrease for Q1, a favorable product mix and strong pricing power support robust cash generation, with management anticipating increased demand in calendar 2026 [4] AMAT Demonstrates Strong Fundamentals - AMAT's operating cash flow margin stands at nearly 26.9% with a 30.1% operating margin for the last twelve months [9] - The three-year average shows around 28.5% operating cash flow margin and 29.4% operating margin [9] - Revenue growth rate is 6.6% for the last twelve months and 4.4% for the three-year average, although it is not categorized as a growth story [9] - AMAT stock is priced at a P/S multiple of 7.0, reflecting a 31% discount compared to one year ago [9] Investment Criteria - AMAT meets several investment criteria, including a market cap exceeding $10 billion, high cash flow from operations margins, and a significant decline in valuation over the past year [10] - The average 12-month forward returns for stocks meeting these criteria are nearing 19%, with a win rate of approximately 72% [10] Portfolio Performance - The Trefis High Quality (HQ) Portfolio, which includes 30 stocks, has a history of outperforming benchmarks such as the S&P 500, S&P mid-cap, and Russell 2000 indices [11] - HQ Portfolio stocks have generated superior returns with reduced risk compared to the benchmark index, indicating a smoother investment experience [11]