Advanced Micro Devices Inc (AMD, Financial) recently reported a daily gain of 4%, despite a 3-month loss of -13.9%. With a reported Loss Per Share of 0.02, the stock appears to be modestly undervalued. This article delves into a detailed valuation analysis of AMD to shed light on its intrinsic value and future prospects.
A Snapshot of Advanced Micro Devices
Advanced Micro Devices designs digital semiconductors for various markets, including PCs, gaming consoles, data centers, industrial, and automotive applications. Known for its strength in central processing units (CPUs) and graphics processing units (GPUs), AMD also supplies chips for leading game consoles like the Sony PlayStation and Microsoft Xbox. The acquisition of field-programmable gate array (FPGA) leader Xilinx in 2022 diversified AMD's business and expanded its opportunities in key end markets such as data centers and automotive. Comparing the current stock price with the GF Value, AMD appears to be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of 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.
Given its current price of $102.44 per share and a market cap of $165.50 billion, Advanced Micro Devices stock appears to be modestly undervalued. Because AMD is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Advanced Micro Devices
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage offer insights into a company's financial strength. Advanced Micro Devices has a cash-to-debt ratio of 2.2, better than 52.32% of 904 companies in the Semiconductors industry. Its overall financial strength is 8 out of 10, indicating strong financial health.
Profitability and Growth of Advanced Micro Devices
Investing in profitable companies, especially those with consistent long-term profitability, poses less risk. Advanced Micro Devices has been profitable for 5 of the past 10 years. With a revenue of $21.90 billion and a Loss Per Share of $0.02 over the past twelve months, its operating margin is -1.73%, ranking worse than 72.12% of 954 companies in the Semiconductors industry. Overall, AMD's profitability ranks at 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of Advanced Micro Devices is 35.7%, ranking better than 88.79% of 874 companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 76%, outperforming 90.7% of 774 companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can help evaluate its profitability. The ROIC of Advanced Micro Devices during the past 12 months is -0.08, while its WACC came in at 15.91. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders.
Conclusion
In conclusion, the stock of Advanced Micro Devices appears to be modestly undervalued. The company's financial condition is strong, its profitability is fair, and its growth outperforms 90.7% of 774 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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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.
