Advanced Micro Devices Inc (AMD, Financial) saw a daily loss of -3.48% and a 3-month gain of 18.63%. Despite a Loss Per Share of 0.02, the question remains: is the stock fairly valued? This article provides a comprehensive valuation analysis of Advanced Micro Devices, encouraging readers to delve into the financial intricacies of the company.
A Snapshot of Advanced Micro Devices
Advanced Micro Devices designs microprocessors for the computer and consumer electronics industries. The majority of its sales are in the personal computer and data center markets via CPUs and GPUs. The firm also supplies chips found in prominent game consoles such as the Sony PlayStation and Microsoft Xbox. In 2022, the firm acquired field-programmable gate array leader Xilinx to diversify its business and augment its opportunities in key end markets such as the data center and automotive.
Comparing the stock price of $112.74 per share to the GF Value of $118.73, Advanced Micro Devices appears to be fairly valued. With a market cap of $182.20 billion, the valuation of Advanced Micro Devices is a compelling subject for investors.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
According to our GF Value, Advanced Micro Devices is fairly valued. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Because Advanced Micro Devices is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Advanced Micro Devices has a cash-to-debt ratio of 2.2, which is better than 52.05% of companies in the Semiconductors industry. GuruFocus ranks the overall financial strength of Advanced Micro Devices at 8 out of 10, which indicates that the financial strength of Advanced Micro Devices is strong.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Advanced Micro Devices has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $21.90 billion and Loss Per Share of $0.02. Its operating margin is -1.73%, which ranks worse than 74.52% of companies in the Semiconductors industry. Overall, the profitability of Advanced Micro Devices is ranked 7 out of 10, which indicates fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Advanced Micro Devices is 35.7%, which ranks better than 88.81% of companies in the Semiconductors industry. The 3-year average EBITDA growth is 76%, which ranks better than 90.52% of companies in the Semiconductors industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Advanced Micro Devices's return on invested capital is -0.08, and its cost of capital is 15.3.
Conclusion
In conclusion, the stock of Advanced Micro Devices (AMD, Financial) is believed to be fairly valued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 90.52% of companies in the Semiconductors industry. To learn more about Advanced Micro Devices stock, you can check out its 30-Year Financials here.
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