Should You Take A Chance With NVIDIA?

With shares of NVIDIA (NASDAQ:NVDA) trading around $12, 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:

T = Trends for a Stock’s Movement

NVIDIA is engaged in creating the graphics chips used in personal computers. The company operates in three segments: graphics processing unit business, professional solutions business, and consumer products business. Its mobile processors are used in cell phones, tablets and auto infotainment systems. Designers use GPUs to create visual effects in movies and create everything from golf clubs to jumbo jets. GPUs are the engines of visual computing, the science and art of using computers to understand, create and enhance images. Through its segments, NVIDIA is able to provide cutting edge technology to satisfy business and consumer senses.

T = Technicals on the Stock Chart are Mixed

NVIDIA has seen its fair share of price swings over the last decade or so. The stock reached highs near $40 per share in 2007 but has subsequently declined in price. NVIDIA stock has been fairly stagnant for the last year indicating a value establishment. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, NVIDIA is bounded by its key averages which signal neutral price action in the near-term.

NVDA

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of NVIDIA options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

NVIDIA Options

36.04%

86%

81%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

As of today, there is an average demand from call buyers or sellers and average demand from put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on NVIDIA’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for NVIDIA look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

55.56%

13.79%

-24%

-54.55%

Revenue Growth (Y-O-Y)

16.14%

12.95%

2.65%

-3.86%

Earnings Reaction

2.91%

-3.86%

-0.61%

6.36%

NVIDIA has seen increasing earnings and revenue over the last four quarters. From these figures, the markets have been mixed about NVIDIA’s last four earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has NVIDIA stock done relative to its peers, Advanced Micro Devices (NYSE:AMD), Intel (NASDAQ:INTC), Qualcomm (NASDAQ:QCOM), and sector?

NVIDIA

AMD

Intel

Qualcomm

Sector

Year-to-Date Return

-1.42%

-0.59%

1.52%

3.12%

3.62%

NVIDIA has been a relative underperformer year-to-date.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Conclusion

NVIDIA provides products that enhance products and services in a wide range of industries across the globe. Earnings and revenue have produced mixed feelings among investors which has led the stock to be range bound. Relative to its peers and sector, NVIDIA has been trailing in performance. WAIT AND SEE what NVIDIA does in coming quarters.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.