MKS Instruments - Great Business On Sale, Waiting For A Bigger Opportunity

MKS Instruments (MKSI) is a very interesting business which has made a great deal over the past year as it perfectly timed the acquisition of Newport, while the integration is ahead of schedule and brings larger financial benefits than has been anticipated. While shares have seen a +20% correction in recent weeks, momentum has been very strong as shares continue to trade with gains of 60% over the past year.

Given the great operational momentum, shares are not even that expensive. In fact, they look cheap at 11-13 times adjusted earnings, amidst a strong balance sheet. With 60% of sales now tied to the semiconductor sector, MKS remains a very cyclical play as cycles can be painful in terms of revenue and profit swings. As my estimates of average earnings power throughout the cycle is much lower than current earnings, I am not necessarily buying today's cheap multiple, but remain a cautious investor, keeping a close eye on the developments.

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