IT Hardware Stocks

NVIDIA Corp Valuation – January 2019 $NVDA

Company Profile (excerpt from Reuters): Nvidia Corporation, incorporated on February 24, 1998, focuses on personal computer (PC) graphics, graphics processing unit (GPU) and also on artificial intelligence (AI). The Company provides service to its customers through PC, mobile and cloud architectures. The Company operates through two segments: GPU and Tegra Processor, which are based on a single underlying architecture. The Company’s processor has created platforms that address four markets: Gaming, Professional Visualization, Datacenter, and Automotive. The Company’s GPU product brands are aimed at specialized markets, including GeForce for gamers; Quadro for designers; Tesla and DGX for AI data scientists and big data researchers, and GRID for cloud-based visual computing users. The Company’s Tegra brand integrates an entire computer onto a single chip, and incorporates GPUs and multi-core central processing units (CPUs) to drive supercomputing for mobile gaming and entertainment devices, as well as autonomous robots, drones and cars. NVIDIA has evolved the GPU into a computer brain at the intersection of virtual reality, high performance computing, or high-performance computing (HPC) and artificial intelligence.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NVDA – January 2019

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 $87,473,996,276 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 7.08 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 1039.20% Pass
6. Moderate PEmg Ratio PEmg < 20 33.34 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.46 Fail
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 7.08 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.20 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

EPSmg $4.30
MG Growth Estimate 15.00%
MG Value $165.60
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $62.37
MG Value based on 0% Growth $36.56
Market Implied Growth Rate 12.42%
Current Price $143.40
% of Intrinsic Value 86.59%

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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.9 in 2015 to an estimated $4.3 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 12.42% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into NVIDIA Corporation revealed the company was trading above its Graham Number of $43.59. The company pays a dividend of $0.57 per share, for a yield of 0.4% Its PEmg (price over earnings per share – ModernGraham) was 33.34, which was above the industry average of 33.25. Finally, the company was trading above its Net Current Asset Value (NCAV) of $11.53.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $11.53
Graham Number $43.59
PEmg 33.34
Current Ratio 7.08
PB Ratio 9.46
Current Dividend $0.57
Dividend Yield 0.40%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $11,386,000,000
Total Current Liabilities $1,608,000,000
Long-Term Debt $1,987,000,000
Total Assets $13,657,000,000
Intangible Assets $667,000,000
Total Liabilities $4,182,000,000
Shares Outstanding (Diluted Average) 625,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.85
Jan2018 $4.82
Jan2017 $2.57
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 $0.17
Jan2004 $0.14
Jan2003 $0.18
Jan2002 $0.34
Jan2001 $0.21
Jan2000 $0.09
Jan1999 $0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.30
Jan2018 $2.71
Jan2017 $1.53
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 $0.78
Jan2007 $0.47
Jan2006 $0.30
Jan2005 $0.19
Jan2004 $0.20
Jan2003 $0.21

Recommended Reading:

Other ModernGraham posts about the company

NVIDIA Corp Valuation – March 2018 $NVDA
Nvidia Corporation Valuation – June 2016 $NVDA
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

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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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