With a daily gain of 2.81% and a three-month gain of 15.95%, Advanced Micro Devices Inc (AMD, Financial) has caught the attention of investors. But the critical question remains: is the stock fairly valued? With an Earnings Per Share (EPS) of $0.12, we delve into a thorough valuation analysis to uncover the true worth of AMD shares. Join us as we explore the intricate details of the company's financial position and future prospects.
Company Introduction
Advanced Micro Devices designs cutting-edge digital semiconductors for diverse markets, including PCs, gaming consoles, data centers, and automotive applications. Known for its CPUs and GPUs, AMD has recently expanded its portfolio by acquiring FPGA leader Xilinx, broadening its reach in the data center and automotive sectors. With a current stock price of $122.51 and a market cap of $197.90 billion, AMD's valuation is a point of keen interest for investors. The company's GF Value, a measure of intrinsic value, stands at $111.85, suggesting a fair valuation that warrants a closer examination.
Summarize GF Value
The GF Value is a unique metric that reflects the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock's price hovers significantly above this value, it may be overvalued, and conversely, if it's below, it could indicate a potential for higher future returns. Advanced Micro Devices (AMD, Financial) appears to be fairly valued, with the stock price aligning closely with the GF Value Line, indicating a balanced investment opportunity.
Because Advanced Micro Devices is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Advanced Micro Devices boasts a cash-to-debt ratio of 2.02, ranking better than 52% of its peers in the Semiconductors industry. This impressive ratio has earned AMD a financial strength rank of 8 out of 10 from GuruFocus, highlighting a strong balance sheet that investors can take comfort in.
Profitability and Growth
Profitable companies, especially those with a track record of consistent performance, present less risk. Advanced Micro Devices has been profitable 5 years over the past decade. With a revenue of $22.10 billion and an Earnings Per Share (EPS) of $0.12 in the last twelve months, AMD's operating margin stands at -0.41%, which, despite being lower than some competitors, has earned it a profitability rank of 7 out of 10 from GuruFocus.
The company's growth is also a key factor in valuation. AMD's 3-year average annual revenue growth of 35.7% outperforms 88.76% of the industry, and its EBITDA growth rate of 76% surpasses 90.96% of its peers, signaling a strong growth trajectory.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to gauge profitability. When ROIC exceeds WACC, it suggests the company is creating shareholder value. AMD's ROIC is 3.84, while its WACC stands at 15.06, indicating the company's efficient cash flow generation in relation to the capital invested.
Conclusion
In conclusion, Advanced Micro Devices (AMD, Financial) presents as fairly valued. The company's strong financial condition, fair profitability, and remarkable growth position it favorably in the Semiconductors industry. To gain deeper insights into AMD's financial journey, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
