uploads/2017/07/A11_Semiconductors_XLNX_price-ratio-July-16-2017-1.png

What Xilinx’s Price Ratios Say about Its Stock Valuation

By

Updated

Xilinx’s price ratios

Analysts believe that Xilinx (XLNX) could benefit from the industry’s technology shift in the long term, but its short-term earnings could grow modestly. Xilinx stock has grown modestly over the past 12 months. Let’s see if the stock price justifies the company’s fundamentals using price ratios.

Article continues below advertisement

Price-to-sales ratio

A company’s PS (price-to-sales) ratio tells us the amount investors are willing to pay for every dollar of the company’s sales. Xilinx had a PS ratio of 7.0x on July 17, 2017, which is higher than Intel’s (INTC) 2.7x but lower than NVIDIA’s (NVDA) 13.0x. This trend occurred because Xilinx’s and Intel’s revenues rose 7.0% YoY (year-over-year) in 1Q17, and NVIDIA’s revenues rose 48.0% YoY.

Intel and Xilinx expect to see their revenues grow in single digits. NVIDIA’s revenues are expected to grow in double digits throughout 2017. These stock prices are being influenced by the sales growth rate.

Forward price-to-earnings ratio

A company’s PE (price-to-earnings) ratio tells us the amount investors are willing to pay per dollar of EPS (earnings per share). A forward PE ratio is based on the analysts’ EPS estimates for the next four quarters.

Xilinx had a forward PE ratio of ~26.6x on July 17, 2017, which is higher than Intel’s ratio of ~12.1x but lower than NVIDIA’s ratio of 53.3x. This shows that NVIDIA stock has already priced in bullish EPS estimates. However, Xilinx stock has priced in moderate EPS growth estimates. Analysts expect Xilinx’s EPS to increase 7.0% YoY to $2.49 in fiscal 2018, which ends in March 2018.

Article continues below advertisement

Investors generally purchase a stock with a low PE ratio as the stock price has not yet priced in future EPS potential. Xilinx stock has not yet priced in future growth potential arising from artificial intelligence, 5G, and autonomous cars because earnings from these markets would not be realized in the next one-year period.

Price-to-book ratio

A company’s PB (price-to-book) ratio tells us whether the company’s equity is overvalued or undervalued compared to its book value. Book value is a conservative price, as a company’s research and development cost is included in its operating expenses and not in the stock’s book value. However, a new product or technology is included in the stock price, which creates a difference between book value and stock price.

On July 17, 2017, Xilinx’s PB ratio stood at ~6.6x, which is higher than Intel’s ratio of ~2.4x but lower than NVIDIA’s ratio of 16.0x. Xilinx’s and Intel’s low PB ratios indicate that these stocks have not priced in their R&D (research and development) efforts. These companies’ R&D efforts have not yet materialized into earnings, but NVIDIA’s R&D efforts have begun to bear fruit.

Analysts believe the technology shift to parallel computing could put Intel at a disadvantage and NVIDIA at an advantage. Xilinx would also benefit from the shift. These stocks have priced in their growth estimates accordingly, with Intel having low price ratios, NVIDIA having high price ratios, and Xilinx having moderate price ratios.

Advertisement

More From Market Realist