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Is NVIDIA Attractive at Its Current Price?

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Jun. 4 2019, Published 10:28 a.m. ET

NVIDIA’s returns

In this series, we’ll take a look at some stocks that are trading close to their 52-week lows to see if they make for good investments after losing considerable value over the last year. While some stocks have rightfully plummeted due to falling revenue and growth and profitability concerns, the pullback might be unnecessarily severe for others.

Shares of semiconductor giant NVIDIA (NVDA) have fallen over 46.0% in the last 12 months. Since the start of May 2019, NVDA stock has lost one-quarter of its value due to the escalation of the trade war between the United States and China (FXI). NVIDIA generates almost 20% of its sales from China, so its stock (expectedly) took a hit.

Several semiconductor stocks have significant exposure to China. Due to this exposure, the VanEck Vectors Semiconductor ETF (SMH) and the iShares PHLX Semiconductor ETF (SOXX) fell 15.5% and 16.5%, respectively, in May.

NVIDIA stock is currently trading 55.0% below its 52-week high. The company is facing short-term headwinds in the hyperscale data center segment. Slowing demand in the cryptocurrency vertical has created excess graphics processing unit inventory for the company.

So has its stock bottomed out?

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PE multiple

NVIDIA has a forward PE multiple of 19.0x. While analysts expect its earnings to fall 20.2% this year, they expect its earnings to rise 35.0% next year. NVIDIA’s earnings growth is expected to rise at a compound annual growth rate of 10.6% over the next five years. Its sales are expected to rise over 9.0% annually in the next three years. The stock looks to have corrected significantly, and its earnings decline and the trade war concerns seem to have been priced in.

Analysts’ estimates

Of the 38 analysts tracking NVIDIA, 21 have given it “buys,” 15 have given it “holds,” and two have given it “sells.” Analysts have a 12-month average price target of $187.71 on the stock, indicating a potential upside of 40.0% from its current price.

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