AMD - Is Barron’s coming late to the party?
Experienced investors know that the words, “This time is different” can be very expensive. Most have been burned by paying up for shares after a large run-up. Analysts typically justify buying anyway with the idea that the good news is just getting started.
The latest example of this kind of optimism comes from the latest issue of Barron’s. Columnist Tiernan Ray’s headline says shares of AMD, already up to $12.24 from a 2016 low of $1.81, can double from here over the next 12 months.
Is it now smart to pay more than five times as much for AMD shares as traders did about one year ago?
I went directly to AMD’s website to check out the firm’s apparently incredible fundamentals. 2016 ended with a GAAP loss of $497 million. According to the company’s website, that translated to a loss of 60 cents per share versus an even larger deficit of 84 cents per share, or $660 million in 2015.
True believers might have accepted management’s non-GAAP adjusted figures. On that basis AMD still lost 14 cents a share in 2016 after blowing through just a $419 million deficit the year before.
Where is the huge revival Barron’s was referencing?
Maybe it was hidden further in AMD’s past. The data below extends back to 2006. AMD was a high-flyer back then, trading as high as $42.70 when EPS weighed in at 70 cents. AMD’s book value on Dec. 31, 2006 closed at $10.58 per share. There were no cash dividends in 2006 and none paid since then, either.
Paying 61x earnings and more than four times book value for a volatile tech stock rarely works out well. It was a horrible disaster for AMD’s holders over the next two years as profits morphed abruptly into losses.
AMD posted consecutive deficits of $2.87 and $2.20 per share during 2007 and 2008. A non-recurring loss of $2.90 per share was recorded, but footnoted, during 2008. Year-end 2008 book value dropped to negative 13 cents per share.
How did the stock react to all that? It plunged about 96%, bottoming in late 2008 at $1.60.
Despite continued corporate losses, 2009’s overall market revival sent AMD shares back to north of $10. Silly investors who chased momentum then watched saw tooth movements take their stock down to $1.80 in November 2012.
AMD failed to post profits during four of the last five years. I’m still looking for the turnaround Barron’s is basing its recommendation on.
Consensus estimates for AMD’s 2017 results on Yahoo Finance are more optimistic than Value Line’s projection of a small loss. Yahoo average estimate now centers on a 6-cent profit (non-GAAP) in 2017 and a 28-cent per share tally in 2018.
Which of those numbers makes Barron’s think AMD can rise to $24 or better by next year? Buying into AMD after sharp run-ups hasn’t worked out in the past. Is this time really different?
Caveat emptor.
Disclosure: No positions in AMD shares or options.
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