Advanced Micro Devices, Inc. (NASDAQGS:AMD) is currently trading at $79.42, at approximately 84.2% of its 52-week high of $94.28. With the stock price up 153.3% in the last year, investors are worried that the company is getting too expensive. So, is Advanced Micro Devices, Inc. overvalued? In this article, we’ll discuss Advanced Micro Devices, Inc.’s valuation using different valuation models.
One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.
Considering Advanced Micro Devices, Inc.’s latest twelve months revenue/share of $6.51 and using the company’s 5-year average price to sales of 3.63x as a benchmark, we have a fair value of $23.67, which is -70.2% lower than the current price.
With no surprise, we can see that Advanced Micro Devices, Inc.’s price to sales of 12.2x is much higher than its 5-year average of 3.6x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.
Absolute Valuation: Advanced Micro Devices, Inc. DCF Analysis
Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.
So, let’s analyze Advanced Micro Devices, Inc. with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 11.5%, an average EBITDA margin forecast of 26.4%, a discount rate of 9.5%, and a terminal EBITDA multiple of 24.3x, we get a fair value of $63.5.
So, Is Advanced Micro Devices, Inc. Overvalued?
Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.
The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.
According to the estimate, Advanced Micro Devices, Inc.’s fair value is $55.67, representing a -29.9% downside from the current price. Below are the fair value estimates for each model.
Company’s Profile: Advanced Micro Devices, Inc.
Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. The company operates in two segments, Computing and Graphics; and Enterprise, Embedded and Semi-Custom. Its products include x86 microprocessors as an accelerated processing unit, chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services; and server and embedded processors, and semi-custom System-on-Chip (SoC) products, development services, and technology for game consoles.
The company provides x86 microprocessors for desktop PCs under the AMD Ryzen, AMD Ryzen PRO, Ryzen, Threadripper, AMD A-Series, AMD FX, AMD Athlon, AMD Athlon PRO, and AMD Pro A-Series processors brands; microprocessors for notebook and 2-in-1s under the AMD Ryzen processors with Radeon Vega GPUs, AMD A-Series, AMD Athlon, AMD Ryzen PRO, and AMD Pro A-Series processors brands; microprocessors for servers under the AMD EPYC and AMD Opteron brands; and chipsets under the AMD trademark.
It also offers discrete GPUs for desktop and notebook PCs under the AMD Radeon graphics and AMD Embedded Radeon brands; professional graphics products under the AMD Radeon Pro and AMD FirePro graphics brands; and Radeon Instinct accelerators for servers. In addition, the company provides embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Geode, AMD Ryzen, AMD EPYC, AMD R-Series, and G-Series processors brands; and customer-specific solutions based on AMD CPU, GPU, and multi-media technologies, as well as semi-custom SoC products.
It serves original equipment and design manufacturers, datacenters, original design manufacturers, system integrators, independent distributors, online retailers, and add-in-board manufacturers through its direct sales force, independent distributors, and sales representatives. The company was founded in 1969 and is headquartered in Santa Clara, California.- VIEW LESS