Advanced Micro Devices Inc (AMD, Financial) recently reported a daily gain of 3.02%. Over the last three months, the stock has experienced a modest gain of 0.39%, despite a Loss Per Share of 0.02. But is the stock fairly valued? This article aims to answer this question by providing a thorough valuation analysis.
Introducing Advanced Micro Devices Inc
Advanced Micro Devices designs microprocessors for the computer and consumer electronics industries, with the majority of its sales in the personal computer and data center markets via CPUs and GPUs. The firm also supplies the chips found in prominent game consoles such as the Sony PlayStation and Microsoft Xbox. In 2022, AMD 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.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line represents the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it may indicate that the stock is overvalued or undervalued, affecting its future returns.
Currently, Advanced Micro Devices (AMD, Financial) appears to be fairly valued, according to GuruFocus' valuation method. With a stock price of $108.85 per share and a market cap of $175.90 billion, the long-term return of AMD's stock is likely to be close to the rate of its business growth.
Financial Strength of Advanced Micro Devices
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are key indicators of a company's financial strength. Advanced Micro Devices has a cash-to-debt ratio of 2.2, which is better than 50.43% of 815 companies in the Semiconductors industry. The overall financial strength of Advanced Micro Devices is 8 out of 10, indicating strong financial health.
Profitability and Growth of Advanced Micro Devices
Investing in profitable companies, especially those showing consistent profitability over the long term, generally poses less risk. Advanced Micro Devices has been profitable 5 out of the past 10 years, with a revenue of $21.90 billion and a Loss Per Share of $0.02 over the past twelve months. Its operating margin is -1.73%, ranking worse than 73.18% of 936 companies in the Semiconductors industry. However, Advanced Micro Devices's 3-year average revenue growth rate is better than 89.02% of 865 companies in the Semiconductors industry, and its 3-year average EBITDA growth rate is 76%, ranking better than 90.62% of 768 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 provide insights into its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The 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. In the past 12 months, Advanced Micro Devices's ROIC was -0.08, while its WACC came in at 15.54.
Conclusion
Overall, the stock of Advanced Micro Devices (AMD, Financial) appears to be fairly valued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 90.62% of 768 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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