IT Hardware Stocks

NVIDIA Corporation Valuation – November 2015 Update $NVDA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how NVIDIA Corporation (NVDA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): NVIDIA Corporation (NVIDIA) is engaged in visual computing, enabling individuals to interact with digital ideas, data and entertainment. The Company is engaged in creating NVIDIA-branded products and services, offering its processors to original equipment manufacturers (OEMs), and licensing its intellectual property. NVIDIA-branded products and services are visual computing platforms that address four markets: Gaming, Enterprise, High Performance Computing & Cloud, and Automotive. The Company operates in two segments: Graphics Processing Unit (GPU) and Tegra Processor. The Company’s GPU product brands include GeForce for gamers; Quadro for designers; Tesla for researchers, learning and big-data analysts; and GRID for cloud-based visual computing users. The Company’s Tegra processors are primarily designed to enable its branded platforms: DRIVE and SHIELD.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NVDA – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,350,564,719 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.82 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 18.40% Fail
6. Moderate PEmg Ratio PEmg < 20 37.48 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.66 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 6.82 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.28 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

NVDA value Chart November 2015

EPSmg $0.81
MG Growth Estimate 10.05%
MG Value $23.14
Opinion Overvalued
MG Value based on 3% Growth $11.74
MG Value based on 0% Growth $6.88
Market Implied Growth Rate 14.49%
Current Price $30.33
% of Intrinsic Value 131.05%

NVIDIA Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, short dividend history, and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.48 in 2012 to an estimated $0.81 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 14.49% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on NVIDIA Corporation (NVDA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

NVDA Charts November 2015

Net Current Asset Value (NCAV) $5.80
Graham Number $10.03
PEmg 37.48
Current Ratio 6.82
PB Ratio 3.66
Dividend Yield 1.16%
Number of Consecutive Years of Dividend Growth 4

 

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Most Recent Balance Sheet Figures

Total Current Assets $5,834,000,000
Total Current Liabilities $855,000,000
Long-Term Debt $1,417,000,000
Total Assets $7,174,000,000
Intangible Assets $790,000,000
Total Liabilities $2,709,000,000
Shares Outstanding (Diluted Average) 539,000,000

Earnings Per Share History

Next Fiscal Year Estimate $0.54
Jan15 $1.12
Jan14 $0.74
Jan13 $0.90
Jan12 $0.94
Jan11 $0.43
Jan10 -$0.12
Jan09 -$0.05
Jan08 $1.31
Jan07 $0.77
Jan06 $0.55
Jan05 $0.17
Jan04 $0.14
Jan03 $0.18
Jan02 $0.34
Jan01 $0.21
Jan00 $0.09
Jan99 $0.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.81
Jan15 $0.90
Jan14 $0.72
Jan13 $0.62
Jan12 $0.48
Jan11 $0.33
Jan10 $0.35
Jan09 $0.57
Jan08 $0.78
Jan07 $0.47
Jan06 $0.30
Jan05 $0.19
Jan04 $0.20
Jan03 $0.21
Jan02 $0.19
Jan01 $0.10
Jan00 $0.03

Recommended Reading:

Other ModernGraham posts about the company

The Best Stocks of the IT Hardware Industry – September 2015
The 20 Best Stocks For Value Investors This Week – 8/15/15
Nvidia Corporation Analysis – August 2015 Update $NVDA
47 Companies in the Spotlight This Week – 5/16/15
Nvidia Corporation Quarterly Valuation – May 2015 $NVDA

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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