NVIDIA Corp (NVDA, Financial) recently reported a daily gain of 4.37%, with a 3-month gain of 50.65%. The Earnings Per Share (EPS) stands at $1.92. With these impressive figures, the question arises: is NVIDIA's stock significantly overvalued? This article delves into an in-depth valuation analysis of NVIDIA, providing valuable insights for potential investors.
Company Introduction
NVIDIA Corp is a leading designer of discrete graphics processing units that enhance the experience on computing platforms. The firm's chips are used in a variety of end markets, including PC gaming and data centers. In recent years, NVIDIA has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving. NVIDIA's stock price currently stands at $426.42, significantly above the GF Value of $304.62, which suggests the stock may be overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered 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's valuation method, NVIDIA (NVDA, Financial) is believed to be significantly overvalued. The current stock price of $426.42 per share and a market cap of $1.10 trillion indicate that the stock may be overvalued and its long-term return may be lower than its future business growth.
NVIDIA's Financial Strength
Before investing in a company, it's crucial to assess its financial strength. NVIDIA has a cash-to-debt ratio of 1.27, which is worse than 58.46% of companies in the Semiconductors industry. However, with an overall financial strength score of 8 out of 10, NVIDIA's financial strength is considered strong.
Profitability and Growth
Investing in profitable companies reduces risk. NVIDIA's profitability is strong, with high profit margins and consistent profitability over the past 10 years. However, NVIDIA's growth ranks worse than 53.12% of companies in the Semiconductors industry, despite a 3-year average annual revenue growth rate of 34.5%.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can provide insights into its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. NVIDIA's ROIC for the past 12 months is 20.32, and its cost of capital is 16.65, suggesting a positive value creation.
Conclusion
Despite its strong financial condition and profitability, NVIDIA Corp's stock appears to be significantly overvalued. Investors are encouraged to explore NVIDIA's 30-Year Financials for more detailed insights. For high-quality companies that may deliver above-average returns, consider GuruFocus's High Quality Low Capex Screener.
