NVIDIA Corp (NVDA, Financial) experienced a daily loss of 3.62%, yet boasts a 3-month gain of 43.02%. The company's Earnings Per Share (EPS) stands at 1.92. But is the stock significantly overvalued? In this article, we'll delve into an exhaustive valuation analysis of NVIDIA (NVDA) to answer this question. Let's begin.
Company Overview
NVIDIA, the leading designer of discrete graphics processing units, has significantly impacted computing platforms. The firm's chips are utilized in various end markets, including PC gaming and data centers. In recent years, NVIDIA has expanded its focus from traditional PC graphics applications to more complex opportunities, including artificial intelligence and autonomous driving. These new sectors leverage the high-performance capabilities of the firm's products. The company's stock price is currently $408.55, with a market cap of $1 trillion, significantly higher than its GF Value of $302.27.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. 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.
According to our calculations, NVIDIA (NVDA, Financial) appears to be significantly overvalued. At its current price of $408.55 per share, NVIDIA has a market cap of $1 trillion, suggesting that its stock is overpriced. Consequently, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. NVIDIA has a cash-to-debt ratio of 1.27, ranking worse than 58.82% of companies in the Semiconductors industry. Despite this, GuruFocus ranks NVIDIA's financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability and Growth
Companies consistently profitable over the long term offer less risk for investors. NVIDIA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $25.90 billion and Earnings Per Share (EPS) of $1.92. Its operating margin is 17.37%, ranking better than 75.19% of companies in the Semiconductors industry. Overall, the profitability of NVIDIA is ranked 10 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. NVIDIA's 3-year average revenue growth rate is better than 87.77% of companies in the Semiconductors industry. However, NVIDIA's 3-year average EBITDA growth rate is 20.1%, ranking worse than 53.12% of companies in the Semiconductors industry.
ROIC Vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, NVIDIA's ROIC is 20.32 while its WACC came in at 16.62.
Conclusion
Overall, NVIDIA (NVDA, Financial) stock appears to be significantly overvalued. Although the company's financial condition and profitability are strong, its growth ranks worse than 53.12% of companies in the Semiconductors industry. To learn more about NVIDIA stock, you can check out its 30-Year Financials here.
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