Is NVIDIA a Bargain Here?

With shares of NVIDIA Corporation (NASDAQ:NVDA) trading at around $12.34, is NVDA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

rumor

Pacific Crest has cut its target estimates for NVIDIA based on the potential loss of Google’s (NASDAQ:GOOG) Nexus 7. Michael McConnell of Pacific Crest stated, “We believe NVIDIA has lost the application processor socket to QUALCOMM’s (NASDAQ:QCOM) Snapdragon APQ8064 chipset (S4 Pro) in the next-generation Google Nexus 7 tablet, which is scheduled to begin shipment in 2Q13. Supply chain conversations indicate two reasons for Google’s selection of the Snapdragon APQ8064 over Tegra 4: (1) competitive pricing and (2) a decision to single-source the application processor and 3G/4G modem to simplify logistics and create a fully pin-compatible platform interface.”

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There has been much debate about whether or not this rumor is true. Is it a case of “Where there is smoke there is fire,” or a case of “Don’t believe everything you hear”? If the rumor is true, then QUALCOMM has simply outplayed NVIDIA. QUALCOMM has certainly held the upper-hand as of late.

It’s not all bad news for NVIDIA, though. Let’s take a lot at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for NVIDIA is normal, and the balance sheet is superb. Having this kind of cash available allows for many different types of opportunities – most of which would be good shareholders.  

Debt-To-Equity

Cash

Long-Term Debt

NVDA

0.42

$3.43 Billion

$19.63 Million

QCOM

0.00

$13.28 Billion

$0

INTC

0.26

$18.16 Billion

$13.45 Billion

 

T = Technicals on the Stock Chart Are Weak    

NVIDIA has underperformed QUALCOMM and Intel Corporation (NASDAQ:INTC) over the past three years. NVIDIA currently yields 2.50 percent. QUALCOMM yields 1.50 percent. And Intel yields 4.30 percent.

1 Month

Year-To-Date

1 Year

3 Year

NVDA

-6.12%

0.69%

-20.84%

-23.40%

QCOM

3.70%

7.31%

9.56%

83.44%

INTC

0.24%

2.86%

-18.51%

19.36%

 

At $12.34, NVIDIA is currently trading above its 50-day SMA, and below its 100-day and 200-day SMA.

50-Day SMA

12.30

100-Day SMA

12.53

200-Day SMA

12.85

 

E = Earnings Have Been Steady           

Earnings and revenue have been improving on an annual basis since 2010.

2008

2009

2010

2011

2012

Revenue ($)in billions

4.10

3.43

3.33

3.54

3.99

Diluted EPS ($)

1.31

-0.05

-0.12

0.43

0.94

 

When we look at the last quarter on a year-over-year basis, we see an increase in earnings and revenue.

10/2011

1/2012

4/2012

7/2012

10/2012

Revenue ($)in billions

1.07

953.19M

924.88M

1.04

1.20

Diluted EPS ($)

0.29

0.18

0.10

0.19

0.33

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry, But Not the Company

With competitors like QUALCOMM and Intel, NVIDIA has a tough road to hoe. If current rumors are true, then industry trends will not favor NVIDIA whatsoever.

Conclusion

NVIDIA is in a tough spot when it comes to competition, and operating expenses are high. Furthermore, the stock has performed poorly in a very strong market, which is often a bad sign. On the positive side, the Quadro line of professional graphics cards are likely to perform well this year, the balance sheet is in superb condition, and there is consistent growth. A 2.50 percent yield doesn’t hurt, either.

Overall, the immediate future doesn’t look appealing, but the stock is worth revisiting down the road. For now, NVIDIA is a WAIT AND SEE.

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