What Will Shield Do For Nvidia?

With shares of NVIDIA Corporation (NASDAQ:NVDA) trading at around $14.56, 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

Nvidia has developed its own mobile gaming device called Shield. It will be released at the end of June, and it will cost $349. Many people following the story have complained about the price, but it’s always better to test the market on the high side. Prices can easily be lowered, but they can’t be raised. If Nvidia were to set a price of $349 and it turned out that people would have paid $349, then Nvidia would have left a lot of money on the table. If Shield isn’t selling well at $349, then the price can simply be lowered to attract more gamers.

There hasn’t been a great deal of interest in the preorder, but that has to do with a lack of marketing more than anything else. Nvidia plans to greatly increase its marketing efforts for Shield later this month. That said, the company is still taking a slow and steady approach. For instance, Nvida won’t test the international market until there is success in the United States. This decision shows a lot of poise, which relates to the quality leadership that has been shown by CEO Jen-Hsun Huang. According to Glassdoor.com, 90 percent of employees approve of their leader, which is an excellent sign.

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Shield will be the only portable gaming device on the Android operating system. It will also be able to stream games from a PC to a television without any loss of quality. Other features include a 5-inch flip-out display (720p/294ppi), an excellent battery life, high-end graphics, and the ability to play PC games, Steam games, Android games and TegraZone games.

Shield comes with: a Silver Lid, an AC Adapter, a USB Cable, and 2 Full Games. The two games are Expendable: Rearmed and Sonic 4 Episode II THD. A separate carrying case can be purchased for $39.99, and a custom lid can be purchased for $19.99.

What’s inside Shield? A Tegra 4 quad-core processor and a 72-core GeForce GPU.

The chart below compares basic fundamentals for Nvidia, Advanced Micro Devices (NYSE:AMD), and Intel Corporation (NASDAQ:INTC).

NVDA AMD INTC
Trailing P/E 15.67 N/A 12.89
Forward P/E 17.79 133.50 12.77
Profit Margin 13.46% -15.01% 19.45%
ROE 12.73% -100.75% 21.06%
Operating Cash Flow 1.01B -600.00M 20.20B
Dividend Yield 2.10% N/A 3.70%
Short Position 6.20% 15.20% 4.50%

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

Nvidia might not be the top performer in the market over the past three years, but the returns have been steady. Also keep in mind the 2.10 percent yield.

1 Month Year-To-Date 1 Year 3 Year
NVDA 5.58% 20.18% 23.78% 16.76%
AMD 11.39% 67.08% -30.02% -53.86%
INTC 7.30% 27.21% 6.34% 30.32%

At $14.56, Nvidia is trading above its averages.

50-Day SMA 13.90
200-Day SMA 12.78
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E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Nvidia is stronger than the industry average of 0.30. Debt management has been superb.

Debt-To-Equity Cash Long-Term Debt
NVDA 0.00 3.71B 18.33M
AMD 4.93 1.00B 2.04B
INTC 0.26 17.16B 13.35B

E = Earnings Have Been Steady

Earnings might have suffered a setback in 2012, but they have improved considerably since 2010. Revenue has consistently improved on an annual basis.

Fiscal Year 2009 2010 2011 2012 2013
Revenue ($) in millions 3,425 3,326 3,543 3,998 4,280
Diluted EPS ($) -0.05 -0.12 0.43 0.94 0.90

Looking at the last quarter on a year-over-year basis, revenue and earnings have improved. However, the sequential numbers weren’t as impressive.

Quarter Apr. 30, 2012 Jul. 31, 2012 Oct. 31, 2012 Jan. 31, 2013 Apr. 30, 2013
Revenue ($) in millions 924.88 1,044.27 1,204.11 1,106.90 954.74
Diluted EPS ($) 0.10 0.19 0.33 0.28 0.13

Now 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?

Conclusion

Nividia has shown consistent revenue improvements over the past several years, and earnings have been steady. Debt management is superb, and employees believe in their leader, which should never be underestimated. On the negative side, the stock isn’t resilient in bear markets.

As far as Shield goes, there are too many mixed opinions from tech analysts to make a prediction with any conviction. The biggest concern seems to be price, but that was covered earlier. Quality doesn’t seem to be an issue, which is a positive.

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For now, Nvidia is an OUTPERFORM, but this is an investment that requires close monitoring. When it comes to long-term stock performance, it’s not a steady winner. There have been many ups and downs, and that pattern is likely to continue.

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.

All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.

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