January 18, 2022

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Here’s Why I Think Lam Research (NASDAQ:LRCX) Is An Interesting Stock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Lam Research (NASDAQ:LRCX). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Lam Research

How Quickly Is Lam Research Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Lam Research has grown EPS by 27% per year, compound, in the last three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.

One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Lam Research shareholders can take confidence from the fact that EBIT margins are up from 28% to 31%, and revenue is growing. That’s great to see, on both counts.

The chart below shows how the company’s bottom and top lines have progressed over time. For finer detail, click on the image.

NasdaqGS:LRCX Earnings and Revenue History November 26th 2021

Fortunately, we’ve got access to analyst forecasts of Lam Research’s future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Lam Research Insiders Aligned With All Shareholders?

Since Lam Research has a market capitalization of US$93b, we wouldn’t expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$260m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Is Lam Research Worth Keeping An Eye On?

For growth investors like me, Lam Research’s raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership impresses me, and suggests that I’m not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. It is worth noting though that we have found 2 warning signs for Lam Research (1 is a bit concerning!) that you need to take into consideration.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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https://simplywall.st/stocks/us/semiconductors/nasdaq-lrcx/lam-research/news/heres-why-i-think-lam-research-nasdaqlrcx-is-an-interesting