Calculating The Fair Value Of Ultra Clean Holdings, Inc. (NASDAQ:UCTT)

Ultra Clean Holdings, Inc. (NASDAQ:UCTT) is a leading provider of critical subsystems, components, and services for the semiconductor industry. With a market capitalization of $16.19 billion and a current stock price of $35.95, investors are wondering if UCTT is a good investment at its current valuation. To determine the fair value of UCTT, we'll analyze its earnings growth, revenue growth, and valuation multiples.



Earnings and Revenue Growth

UCTT's earnings and revenue growth have been relatively stable over the past five years. The company's revenue growth rate has been around 12.98% per year, while its earnings growth has been more volatile, with periods of both positive and negative growth. The average earnings growth rate is around 42.33% per year. In comparison, the semiconductor industry has experienced an average earnings growth rate of around 15% over the same period.



Valuation Multiples

UCTT's current P/E ratio is 513.5714, which is significantly higher than the industry average of 8.6%. This high P/E ratio suggests that the market expects significant earnings growth from the company in the future. However, the company's low return on capital employed (ROCE) of 4.8% may indicate that the market's expectations are not being met, as UCTT is not generating high returns on its reinvested capital.

Analyst Ratings and Price Targets

The average analyst rating for UCTT is "Strong Buy," with a consensus recommendation of "Buy." The average price target is $57.75, which represents an increase of 60.64% from the current stock price of $35.95. This suggests that analysts believe the company's growth prospects are strong and that the current stock price may not fully reflect its intrinsic value.



Conclusion

Based on UCTT's earnings and revenue growth rates, as well as its valuation multiples and analyst ratings, the company appears to be overvalued at its current stock price. While the company's growth prospects are strong, its low ROCE and flat ROCE trend may indicate that the market's expectations are not being met. Investors should consider the company's growth prospects, as well as its efficiency in generating returns and its valuation metrics, such as the P/E ratio and forward P/E ratio, before making an investment decision.