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Why AMD Stock Fell 11% on October 19

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Oct. 22 2018, Published 8:35 a.m. ET

Stock slumped after impressive gains in 2018

Semiconductor (SMH) stock Advanced Micro Devices (AMD) fell 11.1% on October 19 to close trading at $23.66. The stock has fallen over 23% this month driven by the broader sell-off in the tech space. Despite this pullback, AMD has gained 130% in 2018. AMD has corrected recently and is trading 31% below its 52-week high of $34.14.

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Price target of $18 set by New Street Research

New Street Research analyst Pierre Ferragu has a 12-month price target of $18 for AMD. The analyst initiated coverage on AMD with a “sell” rating as well. Ferragu stated, “AMD’s stock price reflects a scenario we don’t believe possible. The company has scored some great wins in recent years but it cannot win sustainably and beyond a niche positioning.”

Ferragu expects Intel (INTC) will turn around manufacturing efforts and believes AMD will not be able to take advantage of the former’s ongoing manufacturing tech issues.

Analyst recommendation

Out of the 31 analysts tracking AMD, 11 have a “buy” recommendation, 15 have a “hold” recommendation, and five recommend a “sell” on the stock. The 12-month average price target for AMD is $26.02, indicating a 10% upside potential from current prices.

AMD has a forward price-to-earnings ratio of 68.4x for 2018 and 42.2x for 2019. In comparison, the company expects revenue growth of 25.7% for 2018 and 9.9% for 2019, and it looks like the stock is overvalued despite the recent correction.

The earnings are estimated to rise at a CAGR (compound annual growth rate) of 0.6% over the next five years compared to its annual growth rate of 26.5% in the last five years.

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