Is It Too Late To Consider KLA (KLAC) After Its 1-Year 99.8% Share Price Surge

• If you are wondering whether KLA's share price still reflects fair value after a strong run, this breakdown will help you see what the current market price might be pricing in.
• With the stock at US$1,359.69 and reported returns of 11.9% over 7 days, 11.0% over 30 days, 6.7% year to date, 99.8% over 1 year, 234.1% over 3 years and 394.6% over 5 years, many investors are asking what kind of valuation justifies those numbers.
• Recent coverage has focused on KLA's position in semiconductor equipment and how investors are reacting to sector wide discussion around capacity investment and technology spending, which helps explain the strong share price performance data you are seeing. Commentary has also highlighted how market expectations around future demand for chip manufacturing tools are feeding into how investors think about companies like KLA.
• KLA currently scores 1 out of 6 on our valuation checks, indicating it screens as undervalued on only one measure. You can see the full breakdown in our valuation score of 1/6. Next we will compare different valuation approaches for KLA, then finish with a more comprehensive way to think about what the stock might be worth.

KLA scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: KLA Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of the cash a company may generate in the future and discounts those projected cash flows back to today, aiming to arrive at an estimate of what the business might be worth now.

For KLA, the model used here is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month free cash flow is reported at about $3.88b. Analyst estimates and extrapolations extend out to 2035, with projected free cash flow of $6.65b in 2030 and forecast values for each intervening year. Simply Wall St notes that analysts typically provide up to 5 years of estimates, and the later years in this model are extrapolated from those inputs.

After discounting these projected cash flows back to today, the DCF model arrives at an estimated intrinsic value of about $629.67 per share for KLA. Compared with the current share price of US$1,359.69, this output suggests the stock prices in a premium of around 115.9%, so on this measure KLA screens as overvalued.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests KLA may be overvalued by 115.9%. Discover 885 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for KLA.

Approach 2: KLA Price vs Earnings

For a profitable company like KLA, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of current earnings. It lets you compare what the market is willing to pay for KLA versus other businesses that also generate earnings today.

What counts as a "normal" or "fair" P/E depends on how the market sees a company’s growth prospects and risk. Higher expected growth or lower perceived risk often justifies a higher multiple, while slower growth or higher risk usually points to a lower one.

KLA currently trades on a P/E of 42.17x. That sits above the Semiconductor industry average of about 41.19x, but slightly below the peer average of 44.78x. Simply Wall St also calculates a proprietary “Fair Ratio” for KLA of 29.89x. This is the P/E it might trade on given its earnings growth profile, industry, profit margins, market cap and risk factors. This Fair Ratio aims to be more tailored than a simple comparison with peers or an industry average, because it adjusts for company specific drivers rather than assuming all firms should trade on similar multiples.

Compared with the Fair Ratio of 29.89x, KLA’s current P/E of 42.17x points to the shares screening as overvalued on this measure.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1450 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your KLA Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St's Community page you can use Narratives, where you set out your story for KLA in plain language, link that story to your assumptions for future revenue, earnings and margins, and see how that flows into a fair value. You can then compare it with the current price to help decide whether to buy or sell. The Narrative automatically updates as new news or earnings arrive. For example, one investor might build a bullish KLA Narrative around strong AI and DRAM spending cycles and arrive at a fair value close to US$1,296.89. Another might focus on tariff risks, China exposure and earnings volatility and land nearer US$745. Both of those views are visible side by side on the platform used by millions of investors.

Do you think there's more to the story for KLA? Head over to our Community to see what others are saying!

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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