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NVIDIA Stock Looks Attractive before Q2 Earnings

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Aug. 14 2019, Published 7:34 a.m. ET

NVIDIA (NVDA) will likely report its results for the second quarter of fiscal 2020 on Thursday after the market bell. Analysts expect NVIDIA to post revenues of $2.55 billion in the second quarter—down 18.5% YoY (year-over-year). The company will likely post an adjusted EPS of $1.15—down 40.7% YoY.

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Is NVIDIA stock undervalued?

Currently, NVIDIA stock is trading at 29.49x its fiscal 2020 estimated EPS of $5.29. The stock is also trading at 21.94x its fiscal 2021 estimated EPS of $7.11. Analysts expect the adjusted EPS to fall 20.3% in fiscal 2020 and rise 34.4% in fiscal 2021. NVIDIA’s earnings will likely rise at a compound annual growth rate of 12.5% over the next five years. However, the company’s revenues could fall 6.6% in fiscal 2020 and rise 19.7% in fiscal 2021.

NVIDIA stock looks overvalued considering its expected negative earnings growth in fiscal 2020. However, the stock appears undervalued considering its expected earnings growth of 34.4% and its PE ratio of 21.94x for fiscal 2021.

Analysts’ recommendations  

Overall, analysts favor a “buy” rating for NVIDIA stock. Among the analysts tracking the stock, 64.1% recommended a “buy,” 28.2% recommended a “hold,” and 7.7% recommended a “sell.” On average, analysts’ 12-month target price for the stock is $182.07, which implies a rise of 16.7% from its closing price of $156.05 on Tuesday. The stock’s median target price is $185.00.

On August 13, RBC reduced its target price on NVIDIA stock to $190 from $200. RBC kept its “outperform” rating.

Technical levels

On August 13, NVIDIA stock closed at $156.05. The level was 3.0% higher than its previous closing price, 46.7% lower than its 52-week high of $292.76, and 25.4% higher than its 52-week low of $124.46. Year-to-date, the stock has risen more than 16%. The company’s market cap is $95.0 billion.

Based on the closing price on Tuesday, NVIDIA stock was trading 5.6% below its 20-day moving average of $165.22, 2.0% below its 50-day moving average of $159.17, and 6.0% below its 100-day moving average of $166.03. On the upside, the company’s immediate key resistance lies near $159.36. Notably, $151.28 could act as an immediate key support level on a daily basis.

The company’s 14-day RSI (relative strength index) score was 38, which could be approaching the oversold zone. An RSI score below 30 indicates that a stock could be oversold, while an RSI score above 70 indicates that a stock could be overbought.

Read How Is NVIDIA Stock Placed ahead of Its Q2 Earnings? to learn more.

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