Intel Corp (INTC, Financial) has seen a daily gain of 2.75% and a three-month gain of 14.25%. However, it reported a Loss Per Share of 0.22. This raises the question: is the stock fairly valued? To answer this, we delve into a detailed valuation analysis of Intel. We invite the reader to explore this analysis with us.
Company Overview
Intel is the world's largest logic chipmaker, primarily focusing on the design and manufacturing of microprocessors for global personal computer and data center markets. Intel pioneered the x86 architecture for microprocessors and was the leading advocate of Moore's law for advances in semiconductor manufacturing. Despite the stagnation of the personal computer market, Intel has been expanding into new adjacencies, such as the Internet of Things, artificial intelligence, and automotive. As of August 23, 2023, Intel's stock price stands at $33.8, with a market cap of $141.50 billion. Its GF Value, an estimation of fair value, is $32.15, indicating that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This value is calculated based on three factors:
- 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.
- Future estimates of the business performance.
Intel's stock appears to be fairly valued, according to GuruFocus Value calculation. If the stock price is significantly above the GF Value Line, it is considered 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. Given Intel's current price of $33.8 per share and the market cap of $141.50 billion, the stock seems fairly valued. Therefore, the long-term return of Intel's 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 carries a higher risk of permanent capital loss. Therefore, it is crucial to thoroughly review a company's financial strength before deciding to buy its stock. The cash-to-debt ratio and interest coverage are great starting points for understanding a company's financial strength. Intel's cash-to-debt ratio is 0.5, which is worse than 79.02% of 815 companies in the Semiconductors industry. GuruFocus ranks Intel's overall financial strength at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Intel has been profitable for 10 of the past 10 years. Over the past twelve months, the company had a revenue of $54 billion and Loss Per Share of $0.22. Its operating margin is -4.44%, which ranks worse than 76.82% of 936 companies in the Semiconductors industry. Overall, Intel's profitability is ranked 8 out of 10, indicating strong 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 Intel is -1.7%, which ranks worse than 78.84% of 865 companies in the Semiconductors industry. The 3-year average EBITDA growth is -13.2%, which ranks worse than 87.63% of 768 companies in the Semiconductors industry.
ROIC vs WACC
A company's profitability can also be evaluated by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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, Intel's ROIC was -0.55 while its WACC came in at 8.82.
Conclusion
In summary, Intel (INTC, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 87.63% of 768 companies in the Semiconductors industry. To learn more about Intel stock, you can check out its 30-Year Financials here.
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