KLA Corp (KLAC) – Closing Long Position – up 175% vs. S&P up 46%
We made KLA Corp (KLAC: $243/share) a Long Idea on August 10, 2017. At the time, KLAC received a Very Attractive rating. Our long thesis highlighted the firm’s large market share, increasing net operating profit after-tax (NOPAT) margin, and favorable industry trends.
This report, along with all of our research, utilizes our superior data to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”
During the more than three-year holding period, KLAC outperformed the S&P 500 by 129%, rising 175% compared to a 46% gain for the S&P 500.
While the firm’s return on invested capital (ROIC) has fallen from 59% in 2018 to 25% TTM, KLA’s economic earnings of $1.1 billion over the TTM are nearly equal to 2018. Even though KLA is still creating value for shareholders, its stock price is trading at all-time highs. With a price-to-economic book value (PEBV) ratio of 2.0, which is the highest since 2006, the expectations implied by KLA’s stock price have grown and we believe there is better risk/reward available in the semiconductor industry. We’re taking the gains and closing this long position.
Figure 1: KLAC vs. S&P 500 – Price Return – Successful Long Idea
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
This article originally published on November 23, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
 Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.
 Our core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. The paper empirically shows that our data is superior to “Operating Income After Depreciation” and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).