Advanced Micro Devices Inc (AMD, Financial) has seen a daily gain of 3.53%, contrasting with a 3-month loss of -8.39%. With a per-share loss of 0.02, the question arises: is the stock fairly valued? This article presents a comprehensive valuation analysis of AMD, integrating critical financial data and company insights. We invite you to delve into the following analysis for an informed perspective on AMD's worth.
Company Overview
Advanced Micro Devices designs a range of digital semiconductors used in various markets, including PCs, gaming consoles, data centers, industrial, and automotive applications. The company's traditional strength lies in central processing units (CPUs) and graphics processing units (GPUs) for PCs and data centers. Additionally, AMD supplies chips for popular game consoles like the Sony PlayStation and Microsoft Xbox. In 2022, AMD diversified its business by acquiring field-programmable gate array (FPGA) leader Xilinx, expanding its opportunities in key markets like data centers and automotive. Comparing the stock price of $109.45 to the GF Value of $119.27 gives an indication of Advanced Micro Devices' intrinsic value.
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 derived from past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of a stock's fair trading value. If the stock price significantly exceeds the GF Value Line, the stock may be overvalued and yield poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, indicating higher future returns.
AMD's Valuation Status
According to GuruFocus' valuation method, Advanced Micro Devices (AMD, Financial) appears to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $109.45 per share, Advanced Micro Devices has a market cap of $176.80 billion, indicating that the stock is fairly valued. As such, the long-term return of AMD's stock is likely to be close to the rate of its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's essential to review a company's financial strength before investing. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Advanced Micro Devices boasts a cash-to-debt ratio of 2.2, ranking better than 51.17% of 895 companies in the Semiconductors industry. Overall, AMD's financial strength is strong, with a score of 8 out of 10.
Profitability and Growth
Investing in profitable companies reduces risk, especially for companies demonstrating consistent profitability over the long term. A company with high profit margins typically offers better performance potential than one with low profit margins. Advanced Micro Devices has been profitable for 5 out of the past 10 years. Over the past 12 months, the company has generated revenues of $21.90 billion and a per-share loss of $0.02. Its operating margin of -1.73% is worse than 71.46% of 939 companies in the Semiconductors industry. Overall, GuruFocus ranks AMD's profitability as fair.
One of the most critical factors in a company's valuation is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Advanced Micro Devices' average annual revenue growth is 35.7%, ranking better than 88.99% of 863 companies in the Semiconductors industry. Its 3-year average EBITDA growth is 76%, ranking better than 90.74% of 767 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. 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 finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, AMD's ROIC was -0.08, while its WACC came in at 15.42.
Conclusion
In conclusion, Advanced Micro Devices' stock appears to be fairly valued. The company's financial condition is strong, its profitability is fair, and its growth ranks better than 90.74% of 767 companies in the Semiconductors industry. To learn more about AMD's stock, you can check out its 30-Year Financials here.
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