At 0.72% earnings yield, KLA trades like treasuries will stay at zero forever while its operating margins expanded to 41.3%.
This framework sees a fortress business with widening moats trading at prices that assume semiconductor equipment will grow like software forever.
Does this company have a durable competitive advantage that protects returns?
This framework sees a widening moat. When your equipment becomes the eyes of billion-dollar chip fabs, customers don't switch for small savings. The expanding margins while investing 11.6% of revenue in R&D suggests pricing power that competitors cannot match.
Are the earnings predictable enough that we can count on them ten years from now?
This framework sees remarkable consistency. Thirty-nine straight beats isn't luck—it's a business so predictable that management can guide conservatively and deliver reliably. The service revenue provides the ballast while equipment cycles provide the growth.
If you bought the whole company today, would the earnings justify what you paid?
This framework sees a wonderful company at a difficult price. At $1,517, you're paying $35 for every dollar of earnings when treasuries yield 4.3% risk-free. The market expects this cyclical business to grow like Microsoft forever.
Are the managers running this company for owners or for themselves?
This framework sees skilled capital allocators who timed buybacks brilliantly. The insider selling at these prices shows they understand value—they're diversifying personal wealth while the company aggressively returns capital. Smart on both counts.
Applying this framework reveals a business with every quality attribute except one: price. KLA's moats are widening, its earnings machine runs like clockwork, and management allocates capital wisely. But at 35x earnings when treasuries yield 4.3%, even wonderful companies can be poor investments. Would you buy a perfect business if it took 35 years to earn back your purchase price?
This analysis applies Warren Buffett's published investment framework to publicly available financial data. It is not authored by, endorsed by, or affiliated with Warren Buffett. Educational purposes only. Not financial advice.