Advanced Micro Devices Inc (AMD, Financial) has recently seen a daily gain of 3.99%, and despite a 3-month loss of 10.15%, it remains a stock of interest for many investors. With a Loss Per Share of 0.02, the question arises: Is the stock modestly undervalued? This comprehensive analysis aims to answer this question by examining the company's financial strength, profitability, and growth. Let's dive in.
Company Overview
Advanced Micro Devices designs digital semiconductors for various markets, including PCs, gaming consoles, data centers, and industrial and automotive applications. A traditional strength of AMD lies in central processing units (CPUs) and graphics processing units (GPUs) used in PCs and data centers. The firm also supplies chips for prominent game consoles like the Sony PlayStation and Microsoft Xbox. In 2022, AMD acquired field-programmable gate array (FPGA) leader Xilinx to diversify its business and augment opportunities in key end markets like data centers and automotive.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. If the stock price is significantly above the GF Value Line, it is 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.
Advanced Micro Devices (AMD, Financial) is estimated to be modestly undervalued based on GuruFocus' valuation method. The stock's fair value is determined by historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. At its current price of $ 104.07 per share, Advanced Micro Devices stock is estimated to be modestly undervalued. This implies that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a company's financial strength should be carefully reviewed before deciding to buy shares. Advanced Micro Devices has a cash-to-debt ratio of 2.2, which ranks better than 51.33% of 904 companies in the Semiconductors industry. Based on this, GuruFocus ranks Advanced Micro Devices's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Profitable companies, especially those demonstrating consistent profitability over the long term, are generally safer investments. Advanced Micro Devices has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $21.90 billion and a Loss Per Share of $0.02. Its operating margin is -1.73%, which ranks worse than 71.8% of 954 companies in the Semiconductors industry. Overall, GuruFocus ranks the profitability of Advanced Micro Devices at 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Advanced Micro Devices is 35.7%, which ranks better than 88.79% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 76%, which ranks better than 90.85% of 776 companies in the Semiconductors industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Advanced Micro Devices's return on invested capital is -0.08, and its cost of capital is 15.88.
Conclusion
In summary, the stock of Advanced Micro Devices (AMD, Financial) is estimated to be modestly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 90.85% of 776 companies in the Semiconductors industry. To learn more about Advanced Micro Devices stock, you can check out its 30-Year Financials here.
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