Lam Research Corp. (NASDAQ:LRCX)

The valuation ratios exhibit a distinct cyclical pattern characterized by an initial period of expansion, a significant contraction reaching a trough in late 2022, and a subsequent aggressive expansion in multiples through early 2026. This trajectory suggests a substantial shift in market sentiment and valuation premiums over the analyzed period.

Price to Earnings (P/E) and Price to Operating Profit (P/OP)

Both the P/E and P/OP ratios moved in tight correlation, reflecting a consistent relationship between net income and operating profit. A peak in early 2021 (P/E of 26.30) was followed by a steady decline to a period low in September 2022, where the P/E dropped to 10.51 and P/OP reached 8.94. Following this correction, a sharp upward trend began in late 2023, culminating in a significant valuation peak in December 2025, with the P/E reaching 49.88 and the P/OP reaching 44.64. This represents a nearly five-fold increase from the 2022 lows.

Price to Sales (P/S)

The P/S ratio mirrors the broader valuation trend, starting at 4.48 in September 2020 and peaking at 6.86 in March 2021. A contraction period saw the ratio fall to 2.83 by September 2022. From December 2023 onward, the revenue multiple experienced an accelerated climb, jumping from 7.75 to a peak of 15.07 in December 2025. This expansion indicates that the market began assigning a significantly higher value to each dollar of revenue generated toward the end of the period.

Price to Book Value (P/BV)

The P/BV ratio demonstrated the most extreme volatility in terms of absolute magnitude. After an initial climb to 16.94 in March 2021, the ratio declined to 6.88 in September 2022. The recovery phase was marked by a sustained increase, with the ratio accelerating sharply in 2025 to reach 30.55 by December 2025 and maintaining that level into March 2026. This suggests a transition toward a valuation model based more heavily on growth expectations and intangible value rather than tangible book assets.

Overall, the convergence of all four valuation metrics indicates a synchronized movement in market pricing. The period from September 2022 to December 2025 marks a transition from a conservative valuation environment to one of high growth expectations, as evidenced by the simultaneous expansion of earnings, sales, and book value multiples.

The valuation trajectory of the common stock exhibits three distinct phases: an initial period of volatility and contraction, a recovery phase characterized by expanding multiples, and a final stage of aggressive valuation expansion. The relationship between earnings per share (EPS) and share price shifted from a period of fundamental-driven pricing to one driven by significant multiple expansion.

Earnings Per Share (EPS) Trends

EPS demonstrated a steady upward trajectory from September 2020 (1.81) through December 2022 (3.80). A period of moderate contraction occurred throughout 2023, with earnings dipping to a low of 2.64 in December 2023. However, a sustained recovery began in early 2024, with EPS climbing consistently to reach 5.36 by March 2026, indicating a strong recovery in fundamental profitability.

Price to Earnings (P/E) Ratio Volatility

The P/E ratio experienced significant fluctuations. After an initial peak of 26.30 in March 2021, the ratio entered a contraction phase, reaching a cyclical low of 10.51 in September 2022. This low valuation persisted through 2022 before beginning a recovery. A second peak occurred in March 2024 at 33.64, followed by a period of relative stabilization between 19.61 and 27.05 through the first quarter of 2025.

Accelerated Valuation Expansion

A sharp divergence between share price growth and earnings growth is observed starting in mid-2025. While EPS grew from 4.23 in March 2025 to 5.36 in March 2026, the share price escalated exponentially from 71.42 to 258.56 in the same period. This resulted in the P/E ratio surging to a peak of 49.88 in December 2025, ending the period at 48.20. This indicates that the market began pricing in significantly higher future growth expectations that far exceeded the immediate growth in quarterly earnings.

Correlation Analysis

Between 2020 and 2023, the share price and P/E ratio generally moved in tandem with EPS trends. However, the 2025-2026 period reveals a decoupling, where the valuation multiple became the primary driver of the share price increase rather than incremental gains in earnings per share.

The valuation of the common stock, as measured by the Price to Operating Profit (P/OP) ratio, exhibited significant volatility between September 2020 and March 2026, characterized by three distinct phases of expansion and contraction. Over this period, the P/OP ratio shifted from a moderate 15.98 to a peak of 44.64, indicating a substantial increase in the premium investors were willing to pay relative to the company's operating earnings.

Valuation Contraction and Low Point (2021–2022)

Following an initial peak of 23.20 in March 2021, the P/OP ratio entered a period of steady decline, reaching a cycle low of 8.94 in September 2022. This contraction was primarily driven by a decline in the share price, which fell from 63.81 to 37.40 during this window. Notably, this valuation dip occurred while operating profit per share was simultaneously increasing from 2.75 to 4.18, suggesting a period of significant undervaluation or a market-driven correction that decoupled stock price from operational performance.

Recovery and Valuation Expansion (2023–2024)

A sharp reversal began in late 2022, with the P/OP ratio climbing from 10.68 in December 2022 to a peak of 30.42 by March 2024. This expansion was characterized by a rapid increase in the share price, which rose to 92.88. During the first half of this recovery, the P/OP ratio expanded even as operating profit per share experienced a temporary decline, falling from 4.48 in December 2022 to a low of 2.96 in December 2023, thereby amplifying the increase in the valuation multiple.

Accelerated Growth and Premium Pricing (2024–2026)

The final phase of the analyzed period shows an aggressive escalation in valuation. After a brief stabilization around 21.55 in September 2024, the P/OP ratio surged to 44.64 by December 2025. This trend was propelled by an exponential increase in share price, which moved from 75.45 in September 2024 to 248.17 in December 2025. While operating profit per share also improved, rising from 3.50 to 5.56 in the same period, the growth in the share price vastly outpaced the growth in operating profits, resulting in a historically high valuation multiple that remained elevated at 43.53 through March 2026.

Operating Profit Performance

Operating profit per share demonstrated a generally positive long-term trajectory, growing from 2.15 in September 2020 to 5.94 by March 2026. Despite a period of operational softening between late 2022 and late 2023, the underlying profitability showed resilience and steady growth in the latter half of the timeframe, providing a fundamental base for the expanding share price.

The Price-to-Sales (P/S) ratio exhibits significant volatility over the analyzed period, characterized by an initial expansion, a subsequent contraction, and a final phase of aggressive valuation growth. While sales per share demonstrated a consistent long-term upward trajectory, the share price experienced more dramatic fluctuations, which served as the primary driver for the volatility in the P/S ratio.

Initial Expansion and Contraction (2020-2022)

The P/S ratio rose from 4.48 in September 2020 to a peak of 6.86 by March 2021. Following this peak, a sustained downward trend occurred, leading to a valuation low of 2.83 in September 2022. This contraction indicates a period where the share price declined more rapidly than the corresponding growth in sales per share.

Recovery and Mid-Term Growth (2023-2024)

A recovery phase is observed starting in late 2022, with the P/S ratio climbing to 4.99 by June 2023. This trend accelerated through December 2023 and March 2024, where the ratio reached 8.53. This period reflects an increase in the market premium attributed to the company's revenue generation.

Aggressive Valuation Surge (2025-2026)

The most significant expansion occurred between March 2025 and March 2026. During this interval, the share price escalated from 71.42 to 258.56, while sales per share grew more moderately from 13.40 to 17.34. This decoupling resulted in a rapid increase in the P/S ratio, which peaked at 14.91 by the end of the period, representing a substantial expansion in valuation multiples relative to historical levels.

The Price to Book Value (P/BV) ratio exhibits significant volatility over the observed period, characterized by three distinct phases: an initial period of fluctuation, a phase of relative stabilization, and a final period of rapid valuation expansion.

Valuation Volatility (2020–2022)

The P/BV ratio began at 9.14 in September 2020 and experienced a sharp increase to a peak of 16.94 by March 2021. This was followed by a sustained downward trend, reaching a period low of 6.88 in September 2022. This volatility indicates a period of significant market adjustment relative to the company's book value.

Stabilization and Moderate Growth (2023–2024)

From March 2023 through March 2025, the P/BV ratio entered a phase of relative stability, fluctuating within a range of 8.22 to 15.14. During this interval, the ratio showed a general tendency to recover from the 2022 lows, peaking at 15.14 in March 2024 before moderating to 9.61 by March 2025.

Exponential Valuation Expansion (2025–2026)

A dramatic acceleration in valuation is observed starting in June 2025. The P/BV ratio rose from 13.09 in June 2025 to 18.69 in September 2025, culminating in a surge to 30.55 by December 2025 and remaining at that level through March 2026. This represents a substantial increase in the market premium attributed to the company's net assets.

Analysis of the underlying components reveals a divergence between the growth of the book value and the market price. Book Value Per Share (BVPS) demonstrated a consistent and steady upward trajectory, growing from 3.76 in September 2020 to 8.46 by March 2026.

Driver Analysis

The fluctuations in the P/BV ratio are predominantly driven by the volatility of the share price rather than changes in the book value. While the BVPS grew linearly, the share price experienced exponential growth in late 2025 and early 2026, rising from 71.42 in March 2025 to 258.56 by March 2026. This aggressive price appreciation is the primary cause of the expansion of the P/BV ratio to 30.55.