NVIDIA Corp

NASDAQ:NVDA   3:59:59 PM EDT
550.29
-21.96 (-3.84%)
4:40:57 PM EDT: $550.20 -0.09 (-0.02%)
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Why NVIDIA May Be The Best Bargain Technology Stock



Fundamentals


##Symbol##NVDA

NVDA dominates the GPU (graphic processor) space. GPUs are heavily utilized in the PC gaming market. While the PC market continues to shrink overall, NIVIDIA’s gaming-related growth continues skyward. The company's products are also used widely in mobile devices and connected cars.

The stock is down rather abruptly recently after Micron (MU) missed estimates in its earnings call and lowered guidance moving forward based on weak PC demand. I also notethat Intel (INTC) and Taiwan Semi (TSM) also brought similar forecasts of slowing PC demand to the table. That's not good news for many companies, NVDA included.

But, let's not lose the forest for the trees. If we look at all technology companies above $10 billion in market cap and then scan for those with the best fundamentals but that have bearish technicals, NVDA is one of only four companies that hits the five star (top fundamental) rating. This would be a sort of "best companies with bargain stock prices" scan. Here's a snippet of that scan from CMLviz.com



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I note rather explicitly that Intel (INTC) is also on this list; a company I am bulish on and long. Here is that story: Why Intel May be a Massive Growth Story. This scan in particular (and the same one across different sectors) is chalk full of compelling companies.

There's a lot to be bullish about with this firm. In Q1 of 2015 it launched the Android-based Internet video-streaming set-top box named SHIELD. The streaming device is based on NVIDIA's "mobile super chip" Tegra X1 mobile processor. The company also has announced GeForce Titan X graphics processing unit (GPU) at the Game Developers Conference (GDC) 2015. This chip is supposed to push NVDA even further forward in the gaming industry and push revenue higher.

NVDA's revenue (TTM) has risen for more than five consecutive quarters (triggering a "trend"). One year ago the firm reported $4.3 billion in revenue which is 10.5% one-year rise. We'll take a very deep dive into the fundamentals as we move forward.

Technicals   |   Support: 19.41   |   Resistance: 20.42    

Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA.

NVDA has a one bull (lowest rated) technical rating because it's trading below the 10-day (short-term), 50-day (medium-term) and 200-day (long-term) moving averages.


Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
EARNINGS ESTIMATES
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-08-06 $0.11 $1.0 billion M $1.0 billion M $1.2 billion M Provided by ZACKS


Let's look at the core elements that drive the company's fundamental rating.


Fundamentals Rating Summary



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 4,730 4,278 4,310

Operating Margin (QTR) 1.200 1.16 1.09 RISING

Net Income (TTM US$ Millions) 628 499 580 RISING

Levered Free Cash Flow (TTM US$ Millions) 632 446 543 RISING

Research and Development (US$ Millions) 339 334 327 RISING

Research and Development Expense/Revenue 0.295 0.303 0.343 FALLING





Stock Returns and Chart

NVDA is down -12.9% over the last three months and up +0.5% over the last six months. The stock price is up +1.7% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 4,7304,2784,310


Revenue (TTM) has increased for at least five consecutive quarters which triggers a "trend" (in this case it's six consecutive quarters). Revenue now stands at an all-time high of $4.7 billion. In the time series chart below, we can see the consecutive quarter growth.

Revenue over the trailing twelve months (TTM) for NVDA is rising. For the most recent (annual) period the company reported $4.7 billion from $4.3 billion a year ago, or a 10.5% change. Two years ago revenue (TTM) was $4.3 billion which is a change of $419 million a (9.7% move). The new product releases NVDA has just made are the driving force behind yet more potential revenue growth even with a slowing PC market.

What do all these numbers mean?
NVDA's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.
Finally, the five+ consecutive quarters of an upward trend in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Net Income (TTM US$ Millions) 628499580RISING


Net Income (after tax profit) over the trailing twelve months (TTM) for NVDA is also rising, seeing nearly a 26% year-over-year gain. Note that earnings hit a low of -$408 million (a loss) back in 2009 and have exploded higher since then.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Levered Free Cash Flow (TTM US$ Millions) 632446543RISING


Levered Free Cash Flow (FCF) (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For NVDA the metric is rising, up nearly 42% year-over-year. While FCF is down from its peak times, it has also found a nice upward trend, just like net income.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. Note the rising bars from a year ago (four quarters ago).



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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Research and Development (US$ Millions) 339334327RISING


Research and Development (US$ Millions) in the most recent quarter for NVDA was $339 million. That's up slightly from a year ago (and two-years ago), and is essentially at all-time highs. That R&D has produced the two newest products discussed in the introduction and are very much a part of the bullish thesis for NVDA moving forward.

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars and R&D per dollar of revenue in the orange line.


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Summary
The bullish thesis for NVIDIA stands squarely on the footing of new product development and continued innovation as it powers through the gaming industry competitive landscape. The company has rising revenue, operating margins, earnings, free cash flow all the while it pours money into R&D and innovates. Those innovations could bring greater revenue growth and withstand some of the slowing in the overall PC market. The stock is down in the recent past, which makes it one of a few technology companies not trading at all-time high valuations.

The bearish thesis stands squarely on the footing of a slowing PC market which has seen Micron (MU) bring down forecasts and has seen Intel (INTC) and Taiwan Semi (TSM) bring down plans for Capital Expenditures by over a billion dollars (each) for the next year.

If you're looking for exposure to the gaming market, NVDA may be one of the most compelling names, understanding the broader market risks.