Advanced Micro Devices Inc (AMD, Financial) experienced a daily loss of -1.9 %, with a 3-month loss of -16.51%. Its Earnings Per Share (EPS) showed a loss of 0.02. Despite these figures, the question arises: Is AMD's stock modestly undervalued? This article aims to provide a comprehensive valuation analysis of AMD, discussing its financial strength, profitability, and growth.
A Snapshot of Advanced Micro Devices
Advanced Micro Devices designs a wide array of digital semiconductors for markets such as 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) used in PCs and data centers. Additionally, AMD supplies the chips found in prominent game consoles such as the Sony PlayStation and Microsoft Xbox. In 2022, the firm acquired field-programmable gate array (FPGA) 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 that represents the current intrinsic value of a stock. It is calculated based on historical multiples, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at. 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 GuruFocus Value calculation, the stock of Advanced Micro Devices (AMD, Financial) is estimated to be modestly undervalued. At its current price of $104.08 per share and the market cap of $168.20 billion, Advanced Micro Devices stock appears to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Advanced Micro Devices
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to thoroughly 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 51.23% of 894 companies in the Semiconductors industry. GuruFocus ranks the overall financial strength of Advanced Micro Devices at 8 out of 10, indicating that its financial strength is strong.
Profitability and Growth of Advanced Micro Devices
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low 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 a Loss Per Share of $0.02. Its operating margin is -1.73%, which ranks worse than 71.43% of 938 companies in the Semiconductors industry. Overall, GuruFocus ranks the profitability of Advanced Micro Devices at 7 out of 10, indicating fair profitability.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Advanced Micro Devices's 3-year average revenue growth rate is better than 88.99% of 863 companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 76%, which ranks better than 90.73% of 766 companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Advanced Micro Devices's ROIC was -0.08, while its WACC came in at 15.43.
Conclusion
Overall, the stock of Advanced Micro Devices (AMD, Financial) is estimated to be modestly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 90.73% of 766 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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