IT Hardware Stocks

Nvidia Corporation Valuation – June 2016 $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 Companies Benjamin Graham Would Invest In Today – March 2016.  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. The Company operates through segments, including GPU and Tegra Processor. Its GPU businesses include GeForce for personal computer (PC) gaming; Quadro for design professionals working in computer-aided design, video editing, special effects and other creative applications; Tesla for deep learning and accelerated computing, leveraging the parallel computing capabilities of graphics processing units (GPUs) for general purpose computing, and GRID to provide the power of NVIDIA graphics through the cloud and datacenters. The Company’s Tegra processors are primarily designed to enable its branded platforms: DRIVE and SHIELD. Tegra is also sold to original equipment manufacturers (OEMs) for devices. DRIVE automotive computers provide supercomputing capabilities to make driving safer. SHIELD consists of a family of devices designed to harness the power of mobile-cloud to revolutionize gaming.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NVDA – June 2016

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 $24,056,373,569 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.44 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 217.54% Pass
6. Moderate PEmg Ratio PEmg < 20 40.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.57 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 2.44 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 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 June 2016

EPSmg $1.14
MG Growth Estimate 12.80%
MG Value $39.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $16.59
MG Value based on 0% Growth $9.72
Market Implied Growth Rate 15.94%
Current Price $46.20
% of Intrinsic Value 118.45%

NVIDIA Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.62 in 2013 to an estimated $1.14 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 15.94% 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.

NVIDIA Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

NVDA charts June 2016

Net Current Asset Value (NCAV) $4.82
Graham Number $15.73
PEmg 40.38
Current Ratio 2.44
PB Ratio 6.57
Current Dividend $0.43
Dividend Yield 0.92%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $5,790,000,000
Total Current Liabilities $2,377,000,000
Long-Term Debt $9,000,000
Total Assets $7,108,000,000
Intangible Assets $773,000,000
Total Liabilities $2,912,000,000
Shares Outstanding (Diluted Average) 597,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.42
Jan2016 $1.08
Jan2015 $1.12
Jan2014 $0.74
Jan2013 $0.90
Jan2012 $0.94
Jan2011 $0.43
Jan2010 -$0.12
Jan2009 -$0.05
Jan2008 $1.31
Jan2007 $0.77
Jan2006 $0.55
Jan2005 $0.19
Jan2004 $0.14
Jan2003 $0.18
Jan2002 $0.34
Jan2001 $0.21
Jan2000 $0.09
Jan1999 $0.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.14
Jan2016 $0.99
Jan2015 $0.90
Jan2014 $0.72
Jan2013 $0.62
Jan2012 $0.48
Jan2011 $0.33
Jan2010 $0.35
Jan2009 $0.57
Jan2008 $0.79
Jan2007 $0.47
Jan2006 $0.31
Jan2005 $0.20
Jan2004 $0.20
Jan2003 $0.21
Jan2002 $0.19
Jan2001 $0.10

Recommended Reading:

Other ModernGraham posts about the company

NVIDIA Corporation Valuation – November 2015 Update $NVDA
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

Other ModernGraham posts about related companies

Intel Corporation Valuation – May 2016 $INTC
HP Inc Valuation – May 2016 $HPQ
FLIR Systems Inc Valuation – May 2016 $FLIR
NetApp Inc Valuation – March 2016 $NTAP
Applied Materials Inc Valuation – February 2016 $AMAT
Skyworks Solutions Inc Stock Valuation – February 2016 $SWKS
Analog Devices Inc Stock Valuation – February 2016 $ADI
Garmin Ltd Stock Valuation – February 2016 $GRMN
Emerson Electric Co Valuation – February 2016 $EMR
Applied Materials Inc Valuation – February 2016 $AMAT

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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