AMD News – Advanced Micro Devices Stock Shows Every Sign Of Being Significantly Overvalued
The stock of Advanced Micro Devices (NAS:AMD, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $77.14 per share and the market cap of $93.4 billion, Advanced Micro Devices stock shows every sign of being significantly overvalued. GF Value for Advanced Micro Devices is shown in the chart below.
Because Advanced Micro Devices is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 13.6% over the past three years and is estimated to grow 20.61% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Advanced Micro Devices has a cash-to-debt ratio of 4.31, which ranks in the middle range of the companies in Semiconductors industry. Based on this, GuruFocus ranks Advanced Micro Devices’s financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Advanced Micro Devices over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Advanced Micro Devices has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $9.8 billion and earnings of $2.04 a share. Its operating margin is 14.02%, which ranks better than 71% of the companies in Semiconductors industry. Overall, GuruFocus ranks the profitability of Advanced Micro Devices at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Advanced Micro Devices over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. 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 76% of the companies in Semiconductors industry. Advanced Micro Devices’s 3-year average EBITDA growth rate is 71.6%, which ranks better than 94% of the companies in Semiconductors industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Advanced Micro Devices’s ROIC is 81.70 while its WACC came in at 13.00. The historical ROIC vs WACC comparison of Advanced Micro Devices is shown below:
In conclusion, the stock of Advanced Micro Devices (NAS:AMD, 30-year Financials) appears to be significantly overvalued. The company’s financial condition is strong and its profitability is fair. Its growth ranks better than 94% of the companies in Semiconductors industry. To learn more about Advanced Micro Devices stock, you can check out its 30-year Financials here.
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