Applied Materials(NASDAQ: AMAT) is one of the largest providers of semiconductor manufacturing equipment. While demand for its products can be volatile, ebbing and flowing with the state of the economy and the semiconductor market, Applied Materials has seen its profits soar over the past decade. These profits provide the fuel for the company's expansive share-buyback program.
Spending billions on buybacks
Applied Materials announced a $10 billion share-buyback program in March of 2023. This added to the $4.7 billion the company already had authorized for share buybacks.
Here's how much stock Applied Materials bought back in each of the past four quarters.
| Period | Share Buybacks |
|---|---|
| Q1 2024 | $700 million |
| Q4 2023 | $700 million |
| Q3 2023 | $439 million |
| Q2 2023 | $800 million |
| Total | $2.639 billion |
Applied Materials generates more-than-enough cash to fund its share-buyback program. In the first quarter of fiscal 2024, which ended on Jan. 28, the company produced free cash flow of $2.1 billion.
Buybacks aren't always a good thing
While share buybacks reduce the share count and boost earnings per share, Applied Materials has been paying a hefty price to execute its multibillion-dollar share-buyback program.
Analysts expect the company to produce earnings per share of $7.78 in fiscal 2024, which puts the forward price-to-earnings ratio at about 26. While that may not look overly expensive, it's no bargain, either.
Share buybacks are a useful tool to boost earnings per share, but when companies pay too much for their own shares, all that spending may fail to propel the stock higher.
Should you invest $1,000 in Applied Materials right now?
Before you buy stock in Applied Materials, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Applied Materials wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 15, 2024
Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Applied Materials. The Motley Fool has a disclosure policy.
