Applied Materials Technicals May Be Set For A Slip

Applied Materials, Inc. (NASDAQ: AMAT) shareholders have been rewarded for its patience with over a 10 percent gain in the last month. That, however, just offset the price losses that occurred in the previous 30 days. Unlike Intel (NASDAQ: INTC), however, Applied Materials is trading near its highs. Can the company continue to trade higher?

What The Bulls See

Some cheap valuation metrics:

• The P/E ratio of 17, which compares favorably to the S&P's P/E ratio of over 22.
• The price-to-sales ratio of 3.31.

A clean balance sheet:

• Cash reserves of $3.09 billion versus total debt of $1.95 billion.
• Debt-to-equity ratio of 24.12 percent.
• A current ratio of 2.75.

Net profit margin of 12.63 percent that spins off positive levered free cash flow of $1.16 billion annually.

What The Bears See

Some pricey valuation metrics:

• The market capitalization of $30.6 billion trumps the estimated enterprise value of $29.7 billion.
• A price-to-book ratio of 3.79.
• The P/E ratio of 17 doesn't look cheap next to estimated revenue growth of only 7 percent.

Related Link: Dan Nathan Sees Unusual Options Activity In Applied Materials

The Technical Take

Technicians note that Applied Materials shares may have just completed an "abc" upside correction (wave "B" of a larger "ABC") early last week when it peaked out at $25.57.

That, according to some technicians, the next move lower will be the "C" wave of the larger "ABC" downside correction with the eventual target being down at $22.15.

If $25.57 is broken on a closing basis, the "ABC" formation will be nullified. If $22.15 is broken on a closing basis (on the downside), then something more serious will be forming on the downside, with the next targets being $20.84 and $20.04.

Overall

Applied Materials shares appear to be set to move lower, which would only be helped along by a continued consolidation and correction lower in the broader market.

From $25.05, a drop down to $22.15 could be a welcome move for those looking to acquire Applied Materials.

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