KLA Corporation (NASDAQ:KLAC) was backed by Jim Cramer on Mad Money on October 6, after a caller asked what catalyst would lift the stock over the coming year.
The shares traded at around $199 on October 6, 90.69% higher over twelve months. “I would own that stock right here,” Cramer said, before adding a ranking that complicates the endorsement.
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The Endorsement Comes Third in Its Own Sector:
Cramer did not pretend this was his first choice. “I like LRCX more, and I like AMAT more, but that’s a very very good company and I would not sell it. Definitely not,” he said. So the endorsement is a reason to keep owning it rather than a first choice, and he was explicit about the order.
His reason for liking the group at all was supply. He called these companies “the solution for the huge semiconductor shortage we have.” The caller pushed on growth, noting revenue had grown below what the price seemed to need. Revenue grew 15.20% in the most recent quarter, and earnings grew 13.30%, so profit is expanding slightly slower than sales.
Billionaire investors hold ten semiconductor stocks. The one ranked first has returned 24% since June.
The Return on Equity Is Not What It Looks Like:
One figure here needs handling carefully before it means anything. Return on equity is 87.50%, which would be remarkable at face value. Book value is $4.86 a share. Those two facts are the same fact. Years of buybacks have shrunk the equity base, so the denominator is small rather than the numerator being large.
Price-to-book of 40.94 carries the same distortion and should be read the same way. The figures that survive the adjustment are the margins. Gross margin is 61.30% and operating margin 42.49%, on net margin of 35.57%. Those are the numbers behind Cramer’s view, because a company keeping more than a third of revenue as profit does not need a large balance sheet.
We named ten stocks for the year ahead in October. What put the first one on top is explained here.
The Valuation Case:
KLA traded at around $199 on October 6 and is worth $259.54 billion. Sustainability depends on whether chip inspection keeps its very small number of suppliers, since that structure is what holds a 42.49% operating margin in place. On price, the stock sits at 54.34 times trailing earnings and 29.51 times forward.
Enterprise value to EBITDA of 44.84 is the measure that avoids the book value problem, and it is demanding by any standard. The shares trade 35.30% below their 52-week high of $307.37, which is the fall the caller was asking about. Short interest is 2.02%.
Conclusion:
Cramer is endorsing the business and ranking it third, and both halves are supported. Gross margin of 61.30% with 42.49% at the operating line is the kind of profitability that comes from a market with very few suppliers. However, the headline return on equity of 87.50% is a buyback artifact rather than a performance figure, and at 44.84 times enterprise value to EBITDA, the price assumes the shortage lasts. The number to watch is revenue growth, because 15.20% is already running ahead of the 13.30% reaching earnings.
Market Sentiment:
KLA Corporation was held by 81 hedge funds with a combined stake value of about $8.55 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 71 hedge fund holders with a cumulative investment value of around $5.11 billion in the previous quarter.
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This article is originally published at Insider Monkey.
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