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Last update on 2024-06-07

Lam Research (LRCX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Lam Research (LRCX) Piotroski Score 2023: Analysis of Financial Health with a Final Score of 6/9.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

We're running Lam Research (LRCX) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
1
Number of shares not diluted?
1
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
0

The Piotroski F-Score is a system used to evaluate the financial strength of a company using 9 distinct criteria related to profitability, liquidity, and operating efficiency. A score is given based on whether the company meets each criterion, with Lam Research (LRCX) scoring a 6 out of 9. The analysis looked into several factors for the year 2023, including the company's profitability, liquidity, and operating performance. Lam Research has shown strong profitability with a positive net income of $4,510,931,000 and a robust Cash Flow from Operations (CFO) of $5,178.94 million. However, the company's Return on Assets (ROA) declined from the previous year, and its gross margin and asset turnover ratio also showed decreases. On the positive side, Lam Research has reduced its leverage, improved its current ratio, and lowered its outstanding shares, indicating strong liquidity and solid financial practices.

Insights for Value Investors Seeking Stable Income

Lam Research (LRCX) appears to be a strong candidate for consideration given its high Piotroski F-Score of 6. The company shows solid profitability and cash flow, good liquidity metrics, and proactive financial management (e.g., reducing shares and leverage). However, the declines in Return on Assets, gross margin, and asset turnover ratio suggest there are some areas for concern regarding operational efficiency. As an investor, it might be a good idea to look more closely into the factors causing these declines before making any decisions. Overall, Lam Research seems to be a strong but not exceptionally flawless investment opportunity.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Lam Research (LRCX)

Company has a positive net income?

Piotroski's first criterion involves assessing whether net income is positive. A positive net income indicates the company's profitability.

Historical Net Income of Lam Research (LRCX)

Lam Research (LRCX) has reported a net income of $4,510,931,000 for 2023. This is a positive figure, meaning the company has been profitable over the period. Over the last 20 years, Lam Research has shown a fluctuating trend in net income, with some years of significant profits and a few periods of losses. Specifically, noticeable losses in 2003 and 2009 contrast sharply with strong profitability in recent years, indicating overall growth and resilience. This consistent profitability aligns with Piotroski’s criterion for a positive net income, yielding LRCX 1 point for this fundamental measure. Thus, for 2023, Lam Research meets the criterion, as indicated by their net income being positive.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) indicates the cash a company generates from its normal business operations and is vital for assessing liquidity.

Historical Operating Cash Flow of Lam Research (LRCX)

Lam Research (LRCX) posted a CFO of $5,178.94 million in 2023. This value is positive, demonstrating the company’s ability to generate substantial cash flow from its core operations. A historical analysis reveals that the company has shown commendable improvements in its CFO over the past 20 years, with 2023 marking an all-time high. Except for a dip in 2009 where CFO was negative at -$78.13 million, Lam Research has maintained a positive CFO which underlines strong operational efficiency. The upward trajectory in CFO is a good trend, highlighting the company’s robust performance and operational strength. In this regard, Lam Research earns a point for having a positive CFO.

Return on Assets (ROA) are growing?

Change in ROA assesses the company's ability to improve its profitability relative to its assets over time. A positive change indicates better efficiency in using its assets.

Historical change in Return on Assets (ROA) of Lam Research (LRCX)

In 2023, Lam Research reported an ROA of 0.2508 compared to 0.2784 in 2022, signifying a decrease. Over the past two decades, the industry's median ROA figures consistently stayed above Lam Research's current year ROA, ranging between 0.3467 and 0.4718. Given this context, Lam Research's ROA has not only declined year-over-year but also underperforms against the industry median, indicating it failed to enhance its efficiency in using its assets. Hence, the score remains 0.

Operating Cashflow are higher than Netincome?

Assessing if the Operating Cash Flow is higher than the Net Income and its importance.

Historical accruals of Lam Research (LRCX)

Examining Lam Research's figures for 2023, the operating cash flow stood at $5.179 billion and outpaced the net income of $4.51 billion. This observation positively reflects on Lam Research's financial health and supports the Piotroski scoring criterion, adding one point. Consistently maintaining a higher operating cash flow compared to net income enhances a company's ability to sustain operations and underscores efficient working capital management. Notably, in 2019, the operating cash flow was also superior, reinforcing this trend's consistency.

Liquidity of Lam Research (LRCX)

Leverage is declining?

Leverage indicates the company's use of borrowed capital. Comparing leverage across periods helps evaluate financial risk.

Historical leverage of Lam Research (LRCX)

In 2022, Lam Research's leverage stood at 0.2907, whereas in 2023 it decreased to 0.2664. This marks a positive move as lower leverage usually indicates reduced financial risk, suggesting improved financial stability and effective debt management. However, it's important to note the company's varying leverage over the past two decades, fluctuating from zero to as high as 0.3414 in 2020. Such volatility demands a nuanced approach in evaluating sustained risk levels. Thus, for 2023, Lam Research gains 1 point for leverage reduction.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay short-term obligations with its short-term assets. It is a liquidity ratio that helps investors understand how well a company can cover its short-term liabilities with its short-term assets. A higher current ratio indicates better liquidity and is often considered a sign of financial health.

Historical Current Ratio of Lam Research (LRCX)

Lam Research's Current Ratio increased from 2.6913 in 2022 to 3.161 in 2023, indicating an improvement in the company's liquidity position. This increase yields a score of 1 for this criterion, suggesting that Lam Research is better positioned to meet its short-term liabilities compared to the previous year. Historically, the company's current ratio has shown fluctuations, but the current figure compares favorably to the industry median of 3.161 in 2023, demonstrating competitive liquidity metrics. While a positive trend, it is important that this ratio not be too high as that could indicate inefficient use of assets.

Number of shares not diluted?

Change in Shares Outstanding criterion examines the number of shares a company has issued and whether it has decreased from one period to the next. It is important as a reduction often means share buybacks, signaling positive financial health and shareholder return.

Historical outstanding shares of Lam Research (LRCX)

Comparing the outstanding shares of Lam Research (LRCX) between 2022 and 2023, the figures decreased from 139,899,000 to 135,472,000. This reduction in outstanding shares typically indicates that the company has been engaging in share repurchase programs, which usually reflects positively on the company's financial practices by signaling to investors that the company believes its shares are undervalued. Furthermore, it concentrates the ownership decreasing dilution for existing shareholders and potentially increases the share price. Over the last 20 years, apart from a few fluctuations mainly in 2013, 2014, 2015, and 2017, the general trend of reducing outstanding shares stands out for Lam Research. What's remarkable here is that the company has brought shares significantly down from higher levels during those years, demonstrating a continued commitment to enhancing shareholder value.

Operating of Lam Research (LRCX)

Cross Margin is growing?

Gross Margin is a critical indicator of a company's financial health and efficiency. It measures how well a company is controlling costs and generating revenue.

Historical gross margin of Lam Research (LRCX)

In 2023, Lam Research's Gross Margin was 0.4462, compared to 0.4569 in 2022. This indicates a decrease in Gross Margin for the year, resulting in a score of 0 for this criterion. Over the last 20 years, Lam Research's Gross Margin has generally been higher than the industry median, but the trend shows fluctuations. While the industry median has increased to 0.4718 in 2023, Lam Research has experienced a slight decline this year. This could indicate rising costs or pricing pressures, affecting the company's profitability.

Asset Turnover Ratio is growing?

Asset turnover ratio measures the efficiency of a company's use of its assets to generate sales. A higher ratio indicates better performance, making it important to track.

Historical asset turnover ratio of Lam Research (LRCX)

For the fiscal year 2023, Lam Research Corporation recorded an asset turnover ratio of 0.9689, compared to a ratio of 1.0413 in 2022. This marks a decrease in the asset turnover ratio, signifying that the company was less efficient in utilizing its assets to generate revenue in 2023 compared to the previous year. Historically, looking at the past 20 years, Lam Research's asset turnover has shown significant fluctuation, peaking at 1.2211 in 2008 and reaching its lowest point at 0.4419 in 2012. This cyclical nature of the asset turnover ratio underscores the varying operational efficiencies faced by the company over the years. Given the decline from 2022 to 2023, no point is awarded in this criterion.


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