NVIDIA Corp (NVDA) has seen impressive gains recently, with a daily increase of 4.62% and a 3-month gain of 36.7%. With an Earnings Per Share (EPS) of 1.92, the company appears to be performing well. However, there are concerns about whether the stock is overvalued. This article aims to provide a comprehensive valuation analysis of NVIDIA by examining its financial health, profitability, and growth.
NVIDIA is a leading designer of discrete graphics processing units used in various applications, such as PC gaming and data centers. The company has expanded its focus to include artificial intelligence and autonomous driving, leveraging the high-performance capabilities of its products.
With a current share price of $453, NVIDIA has a market cap of $1.10 trillion. However, its GF Value, an estimation of fair value, is $312.97. This suggests that the stock may be significantly overvalued.
The GF Value represents the intrinsic value of a stock based on historical multiples, past returns and growth, and future business performance estimates. If the stock price is above the GF Value Line, it is considered overvalued and likely to have poor future returns. According to analysis, NVIDIA is believed to be significantly overvalued.
Examining the financial strength of a company is crucial before making investment decisions. NVIDIA has a cash-to-debt ratio of 1.27, indicating a weaker position compared to other companies in the Semiconductors industry. However, the overall financial strength of NVIDIA is ranked 8 out of 10, indicating strong financial health.
Profitability is an essential factor in assessing investment risk. NVIDIA has been profitable over the past 10 years, with a revenue of $25.90 billion and an EPS of $1.92 in the past twelve months. Its operating margin ranks better than 75.75% of companies in the Semiconductors industry, showcasing strong profitability.
Growth is important for a company's valuation and performance. NVIDIA's 3-year average revenue growth rate is better than 87.86% of companies in the industry. However, its 3-year average EBITDA growth rate ranks worse than 52.99% of industry peers.
When assessing return on invested capital (ROIC) and the weighted average cost of capital (WACC), it is favorable to have ROIC higher than WACC. NVIDIA's ROIC for the past 12 months is 20.32, while its cost of capital is 16.75.
In conclusion, the stock of NVIDIA Corp (NVDA) appears to be significantly overvalued. Although the company shows strong financial health and profitability, its growth rate is relatively lower compared to industry peers. Investors should carefully consider these factors before making investment decisions.
Definitions:
– Earnings Per Share (EPS) – The portion of a company's profit allocated to each outstanding share of common stock.
– GF Value – An estimation of a stock's fair value calculated based on historical multiples, past returns and growth, and future business performance estimates.
– Cash-to-Debt Ratio – A ratio used to measure a company's ability to cover its total debt with its total cash and short-term investments.
– Interest Coverage – A ratio indicating a company's ability to pay the interest on its outstanding debt.
– Return on Invested Capital (ROIC) – A measure of how well a company generates cash flow relative to the capital invested in its business.
– Weighted Average Cost of Capital (WACC) – The rate a company is expected to pay on average to finance its assets.
– Semiconductors Industry – Companies involved in the design, manufacturing, and sale of semiconductors and related products.
– GuruFocus – A website that provides in-depth financial news, analysis, and tools for investment research.
Source:
– “Is NVIDIA Corp (NVDA) Significantly Overvalued? A Comprehensive Valuation Analysis” from GuruFocus.