NVIDIA Corp (NVDA, Financial) has recently shown a notable daily gain of 16.4%, with a significant three-month gain of 61.23%. These impressive figures, alongside an Earnings Per Share (EPS) of 11.93, position the company in a favorable light in the stock market. However, one critical question arises: is NVIDIA (NVDA) modestly overvalued? This article delves into the valuation analysis of NVIDIA, providing a comprehensive examination of its financial health and market value.
Company Introduction
NVIDIA Corp (NVDA, Financial) is a pioneer in graphics processing unit (GPU) technology, with its products initially enhancing PC gaming experiences. However, the company's GPUs have become integral to artificial intelligence applications, propelling NVIDIA to the forefront of AI hardware and software development. With its Cuda platform and expansion into data center networking solutions, NVIDIA is at the cutting edge of handling complex AI workloads. Currently, NVIDIA's market price stands at $785.38 per share, with a GF Value of $606.17, suggesting a modest overvaluation. The following analysis will scrutinize NVIDIA's fair value with the aim of providing a clear picture of the company's true worth.
Summarize GF Value
The GF Value is a proprietary metric that estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor for past performance, and future business performance forecasts. According to this model, NVIDIA (NVDA, Financial) appears to be modestly overvalued. The GF Value Line serves as a benchmark, suggesting that if NVIDIA's stock price is significantly higher than the GF Value Line, it may yield poorer future returns. Conversely, a price well below the GF Value Line could indicate a stock poised for better returns. At the current price of $785.38, NVIDIA's stock seems to be trading above its fair value, as estimated by GuruFocus.
Given NVIDIA's relative overvaluation, it is likely that the long-term return of its stock may not align with its business growth, potentially resulting in lower returns for investors.
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Financial Strength
An analysis of NVIDIA's financial strength reveals that the company's cash-to-debt ratio stands at 1.66, placing it in a less favorable position than over half of its industry peers. Despite this, NVIDIA's overall financial strength has been rated a robust 8 out of 10 by GuruFocus, indicating a strong financial position. This assessment is crucial as investing in companies with solid financial health mitigates the risk of capital loss.
Profitability and Growth
Profitability is a key indicator of a company's investment safety, and NVIDIA has demonstrated consistent profitability over the past decade. With a remarkable operating margin of 45.94%, NVIDIA stands out in the Semiconductors industry, underscoring its efficient operations. The company's profitability rank is a perfect 10 out of 10, reflecting its robust financial performance.
Growth is equally vital for valuation, and NVIDIA's average annual revenue growth rate of 34.5% outperforms the majority of its industry counterparts. However, its 3-year average EBITDA growth of 20.1% does not fare as well, indicating areas where NVIDIA's growth could be more robust.
ROIC vs. WACC
Evaluating a company's profitability through its Return on Invested Capital (ROIC) in comparison to its Weighted Average Cost of Capital (WACC) provides insight into value creation. NVIDIA's ROIC over the past 12 months stands at an impressive 71.06, significantly surpassing its WACC of 17.93, indicating the company's effective capital allocation and value generation for shareholders.
Conclusion
In summary, NVIDIA (NVDA, Financial) is perceived to be modestly overvalued according to the GF Value. Despite this, NVIDIA exhibits strong financial health and profitability. Its growth, however, is mixed when compared to industry standards. For a more detailed understanding of NVIDIA's financials, investors are encouraged to review 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.
