Advanced Micro Devices Inc (AMD, Financial) has recently shown a daily gain of 2.73% and an impressive 3-month gain of 49.45%. Despite these gains, investors are pondering whether the current stock price reflects the company's true value, especially with an Earnings Per Share (EPS) of $0.12. The question at hand is whether AMD is modestly overvalued. This analysis aims to provide investors with a clearer picture of AMD's valuation in the context of its current performance.
Understanding Advanced Micro Devices
Advanced Micro Devices Inc (AMD, Financial) is a key player in the digital semiconductor industry, catering to diverse markets including PCs, gaming consoles, data centers, and automotive applications. Known for its CPUs and GPUs, AMD has also expanded its portfolio with the acquisition of FPGA leader Xilinx. With a current stock price of $143.41 and a market cap of $231.70 billion, we compare this to the GF Value, an estimation of fair value, to delve deeper into the company's valuation.
Deciphering the GF Value
The GF Value is a tailored measure of a stock's intrinsic value, factoring in historical trading multiples, a GuruFocus adjustment, and future business performance projections. If a stock trades significantly above this value, it's likely overvalued, hinting at a potential dip in future returns. Conversely, trading below the GF Value suggests a stock may offer higher future returns.
According to GuruFocus's valuation, AMD's stock is modestly overvalued. This assessment is based on historical trading multiples, past business growth, and future business performance estimates. This suggests that long-term returns on AMD's stock might lag behind the company's business growth.
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Financial Strength of Advanced Micro Devices
Investors must consider a company's financial strength to avoid permanent capital loss. Indicators like the cash-to-debt ratio and interest coverage can shed light on this aspect. AMD has a cash-to-debt ratio of 2.02, ranking better than 53.72% of its peers in the semiconductor industry. With an overall financial strength rating of 8 out of 10, AMD stands as a financially robust company.
Profitability and Growth Prospects
Profitable companies, especially those with consistent long-term profitability, present less risk. AMD has been profitable for 5 out of the past 10 years, with a revenue of $22.10 billion and an EPS of $0.12 over the past twelve months. Though its operating margin is lower than many in its industry, the company's profitability rank is a solid 7 out of 10.
Growth is a critical valuation factor, and AMD's 3-year average annual revenue growth rate of 35.7% outperforms 88.36% of its industry peers. Its EBITDA growth rate is also impressive at 76%, ranking higher than 90.84% of competitors.
Comparing ROIC and WACC
An effective profitability measure is to compare Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC). Ideally, ROIC should exceed WACC. AMD's current ROIC is 3.84, but its WACC stands higher at 14.73, suggesting the company may not be generating sufficient returns on its investments.
Conclusion: Evaluating AMD's Valuation
In summary, Advanced Micro Devices is considered modestly overvalued based on the current analysis. The company boasts strong financial health and fair profitability, with growth rates outshining many of its industry counterparts. For a more detailed financial overview, investors can explore AMD's 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.
