NVDA Stock Study (6-26-24)

Posted by Mark on August 9, 2024 at 06:39 | Last modified: June 26, 2024 14:01

I recently studied NVIDIA Corp. (NVDA) with a closing price of $126.09. The stock was priced at $131.67 when I last studied it on 10/5/22: apparently little changed except for the 10:1 stock split that took place 16 days ago! What have I been missing?

M* writes:

     > Nvidia is a leading developer of graphics processing units.
     > Traditionally, GPUs were used to enhance the experience on
     > computing platforms, most notably in gaming applications on
     > PCs. GPU use cases have since emerged as important
     > semiconductors used in artificial intelligence. Nvidia not
     > only offers AI GPUs, but also a software platform, Cuda,
     > used for AI model development and training. Nvidia is also
     > expanding its data center networking solutions, helping to
     > tie GPUs together to handle complex workloads.

Over the last 10 years (FY ends Jan 31; references to year at BI and Value Line incremented to align), this mega-size ( > $50B annual revenue) company has grown sales and EPS at annualized rates of 30.0% and 40.8%, respectively. Lines are generally up, straight, and parallel with a sales dip in ’20 and EPS dips in ’20 and ’23. 10-year EPS R^2 of 0.83 triggers an audit review, but I think it passes visual inspection.

Over the last decade, PTPM is about even with peers and leading industry averages while ranging from 14.8% in ’16 to 55.5% in ’24 with a last-5-year mean of 32.3%. ROE ranges from 1.3% in ’16 to 8.8% in ’23 with a last-5-year mean of 4.0%. The latter was 23.7% on my first study; this data series may need stock-split adjustment. Debt-to-Capital is lower than peer and industry averages while ranging from 17.5% in ’19 to 35.2% in ’23 with a last-5-year mean of 27.1%.

Quick Ratio is 2.8 and Interest Coverage is 192. M* also rates Capital Allocation as “Exemplary” and assigns the company a “Wide” economic moat. Value Line grades A+ for Financial Strength.

With regard to sales growth:

• YF projects 97.8% and 33.4% for ’25 and ’26, respectively (based on 49 analysts).
• Zacks projects 92.8% and 27.1% for ’25 and ’26, respectively (10 analysts).
• Value Line projects 28.1% annualized growth from ’24-’29.
• CFRA projects 98.0% YOY and 56.1% per year for ’25 and ’24-’26, respectively.
• M* gives a 2-year ACE of 62.2% per year and projects 29.0% per year for the next decade in its analyst note.

I am forecasting below the range at 25.0% per year.

With regard to EPS growth:

• MarketWatch projects 55.3% and 48.6% per year for ’24-’26 and ’24-’27, respectively (based on 61 analysts).
• Nasdaq.com projects 19.7% and 29.3% per year for ’25-’27 and ’25-’28 [14/4/1 analyst(s) for ’25/’27/’28].
• Seeking Alpha projects 4-year annualized growth of 32.7%.
• YF projects YOY 109% and 34.4% for ’25 and ’26, respectively (41), along with 5-year annualized growth of 43.3%.
• Zacks projects YOY 106% and 25.3% for ’25 and ’26, respectively (13), along with 5-year annualized growth of 37.6%.
• Value Line projects 30.9% annualized growth from ’24-’29.
• CFRA projects 108% YOY and 63.4% per year for ’25 and ’24-’26, respectively, and a 3-year CAGR of 37.0%.
• M* projects long-term annualized growth of 33.6%.

My 28.0% per year forecast is below the long-term-estimate range (mean of five: 35.6%). Initial value is ’24 EPS of $1.19/share rather than 2025 Q1 EPS of $1.71 (annualized).

My Forecast High P/E is 40.0. Excluding 166 in ’23, high P/E has increased over the past decade from 19.0 (’15) to 53.2 (’24) with a last-5-year mean of 71.4 and a last-5-year-mean average P/E of 48.5. I am forecasting above my comfort zone [only ’15 and ’16 (31.4) are less].

My Forecast Low P/E is 17.0. Excluding 62.1 in ’23, low P/E over the past decade ranges from 9.7 in ’17 to 30.0 in ’22 with a last-5-year mean of 25.7. I am forecasting in the lower portion of the range [only ’17 and ’15 (13.7) are less].

My Low Stock Price Forecast (LSPF) is $86.00. Default based on initial value from above ($20.20) seems unreasonably low at 84.0% less than the previous close and 48.5% less than the 52-week low [the real question is how to forecast a stock that has gone parabolic?]. My LSPF is [arbitrarily] 31.8% less than the previous close and 94.1% higher than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 1.3% in ’24 to 37.0% in ’16. Being insignificant anyway, I am discounting the dividend to 0%.

These inputs land NVDA in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 5.4%.

PAR (using Forecast Average—not High—P/E) is unacceptable for any size company at -1.5%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 676 studies (my study and 198 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 30.0%, 27.9%, 61.7, 31.2, and 7.6%, respectively. I am lower on every input except the second (28.0%). Value Line’s projected average annual P/E of 32.5 is less than MS (46.5) and greater than mine (28.5).

MS high / low EPS are $19.12 / $4.00 versus my $4.10 / $1.19 (per share). These cannot really be compared because MS data are not all stock-split adjusted. Value Line’s high EPS of $5.00/share is greater than mine.

Also because MS data are not completely stock-split adjusted, LSPF cannot be compared.

Zoning and MS TAR [much greater than mine at 22.0% but also stock-split sensitive] aside, MOS in this study is robust. I cannot consider my LSPF conservative because even at > 30.0% below the previous close, overriding default always adds risk. Nevertheless, my EPS growth rate is below the range, my forecast P/E range is low, and my high EPS is low.

With regard to valuation, PEG is 1.3 and 2.0 per Zacks and my projected P/E, respectively: the latter a tad high. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is very expensive at 1.5 (2023 P/E excluded as discussed above).

NVDA has [projected] growth like no company I have studied before. I don’t just want growth, though. I want GARP: growth at a reasonable price.

U/D has NVDA a BUY under $105/share. The stock needs to approach $82 in order to meet the BI TAR criterion given a forecast high price of $164.