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Investor in semiconductor chip manufacturing equipment manufacturer applied materials (AMAT 6.35%) Had a great day on Friday. Strong earnings increased the company’s value by billions of dollars. At least a dozen analysts raised their price targets for Applied Materials stock in the wake of the Beat, but one rating stands out.
On Friday, Susquehanna Financial Group analyst Mehdi Hosseini raised his price target to $160 per share, StreetInsider.com reported.
This means Applied Materials stock could fall. under twenty two%.
Applied Materials Upgrade
As of this writing, Applied Materials stock is worth more than $200 per share.That’s Hosseini’s new (and Improved) The $160 per share price target requires the stock to fall, not rise. So why did Hosseini think this would happen?
As analysts explained, half of the money Applied Materials made in 2023 came from machinery exports to China with above-average profit margins. The problem is that Hosseini believes these ultra-profitable sales in China will shrink to 35% to 40% of Applied’s sales in the future.
Is Applied Materials for sale?
It doesn’t take a market genius to see what that means for Applied Materials stock. If Mr. Hosseini’s predictions are correct, China’s purchase of much of the machinery needed could cause sales to fall significantly and profit margins to fall even more rapidly.
Simply put, Hosseini sees Applied Materials earning $8.07 per share this year, implying a forward P/E of 25x for the stock. It’s not that expensive. But if margins decline (analysts expect gross margins to decline 120 basis points in the second half of 2024) and sales are likely to fall as well, Applied’s stock price will fall as well. Of course you should.
Rich Smith has no position in any stocks mentioned. The Motley Fool has a position in and recommends Applied Materials. The Motley Fool has a disclosure policy.
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