NVIDIA Priced for Superior Growth
NVIDIA Corporation (NASDAQ:NVDA) has been on fire on the chart over the past year, producing a sizzling gain of 283%. but whether it’s still worth a look is debatable.
The upward projection in NVDA stock is being triggered by the massive demand for its graphics chips, which power everything from the traditional gaming and graphics to the current demand for chips designed for the intensive artificial intelligence (AI) space.
NVDA stock traded at a record $119.93 on December 28, 2016, which is impressive, especially if you were fortunate to time your purchase at near the 52-week low of $24.75. NVIDIA stock has come off its high and currently settling in a tight consolidation channel at between $100.00 and $110.00.
I will talk more about the NVDA stock chart later, but I want to briefly examine the fundamentals.
NVIDIA is a big-growth story, and is priced for continued growth. There is plenty of positive news priced into NVDA stock, so any disappointments will likely drive sellers to the exits, which means you have to be careful when buying or holding.
Revenues are expected to jump 36.50% to $6.84 billion in FY17, followed by a smaller 15.60% to $7.9 billion in FY18. (Source: “NVIDIA Corporation (NVDA),” Yahoo! Finance, last accessed January 20, 2017.)
The drop-off in FY18 is not a big concern, as it surpasses the 7.05% growth in FY16 and 13.3% in FY15. NVIDIA stock is priced for superior growth versus its peers.
NVIDIA trades at 38.5 times its FY18 earnings per share (EPS), which is higher than the 13.06 times for Intel Corporation (NASDAQ:INTC) and the 17 times for Ambarella Inc (NASDAQ:AMBA).
The estimated five-year compound annual growth rate (CAGR) shows the superior growth for NVDA stock versus Intel and Ambarella.
- NVIDIA: 28.58%
- Intel: 10.0%
- Ambarella: 16.33%
Ways to Play NVDA Stock
A look at the NVDA stock chart shows a breakout at around $21.50 in early 2015 that was accompanied by a strong moving average convergence divergence (MACD) and relative strength. This was followed by an upside breakout gap at $72.00 in mid-November that drove the stock up to $80.00.
Chart courtesy of StockCharts.com
After subsequently surging to its high in December 2016, NVDA stock has settled back down to a tight sideways channel at between $100.00 and $110.00. The stock appears to be showing some downward bias that could see a move to the 50-day moving average at around $97.00.
Failure to hold could see NVDA stock test support at $90.00-$85.00. Below this is major support at $80.00, which was the upper price of the previous trading gap.
If interested in NVIDIA stock, it may be wise for investors to be aware of the downside risk, and of the fact that the company is vulnerable to a bad quarter of news.