If we look at Intel’s (INTC) price ratios, the stock looks reasonably priced, even at its 17-year high of $45, and many analysts seem to believe that Intel is a cheap stock for investors who want to bet on AI (artificial intelligence).
Forward price-to-earnings ratio
Intel’s PE (price-to-earnings) ratio tells us the amount that investors are willing to pay per dollar of EPS (earnings per share). The forward PE ratio is based on the analysts’ EPS estimates for the next four quarters.
On November 22, 2017, Intel’s forward PE ratio stood at 13.8x, which is lower than Advanced Micro Devices’ (AMD) 32.3x, NVIDIA’s (NVDA) 45.7x, and Broadcom’s (AVGO) 15.4x. Intel’s stock price is low compared with its earnings because its earnings growth rate is lower than those of its peers.
In fiscal 3Q17, Intel’s EPS rose 26% YoY (year-over-year), while AMD’s EPS rose 233% YoY, NVIDIA’s EPS rose 41% YoY, and Broadcom’s EPS rose 42% YoY. Remember, a stock’s price is influenced by the growth rate.
Forward price-to-sales ratio
Intel’s PS (price-to-sales) ratio tells us the amount that investors are willing to pay for every dollar of the company’s sales. A forward PS ratio is based on the analysts’ revenue estimates for the next four quarters.
On November 22, 2017, Intel’s forward PS ratio stood at 3.37x, which is higher than AMD’s 2.1x but lower than NVIDIA’s 13.8x and Broadcom’s 6.4x. Intel’s stock is reasonably priced compared with its revenues. NVIDIA has a high PS ratio because it’s in the middle of a high growth cycle driven by the AI (artificial intelligence) revolution.
Intel’s price-to-FCF (free cash flow) ratio tells us the amount that investors are willing to pay for every dollar of FCF.
On November 22, 2017, Intel’s price-to-FCF ratio stood at 30.9x, which is lower than NVIDIA’s 56.4x and Broadcom’s 33.08x. AMD has a negative price-to-FCF of 50.5x because its low profits and high-interest burden have put pressure on its cash flow.
The low price-to-FCF shows that Intel stock is undervalued compared with its FCF. This could mean that overall, the stock is undervalued when compared with its earnings and free cash flow but fairly valued when compared with its sales.