Investors who held Advanced Micro Devices, Inc. (NASDAQ:AMD) shares for the last five years, gained 1,526%.
This is one of the main arguments for long term investing - pick great companies and hold.
It's also good to see the share price up 38% over the last quarter. The company reported its financial results recently, and you can catch up on the latest numbers by reading our company report.
It really delights us to see such great share price performance for investors.
Stock returns are a reflection of profits now and the potential profits in the future. So, we will take a look at how good of a profit making machine is AMD.
By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last half decade, Advanced Micro Devices became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too.
Indeed, the Advanced Micro Devices share price has gained 459% in three years. Meanwhile, EPS is up 126% per year. This EPS growth is higher than the 77% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Advanced Micro Devices has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Advanced Micro Devices stock, you should check out this FREE detailed report on its balance sheet.
After the recent earnings report, we have seen just how strongly AMD came with earnings:
- Revenue US$3.85b, up 99% year over year, and beating the US$3.65 estimate
- Operating (EBIT) margin 22%
- EPS US$0.63 beating the US$0.54 estimate
- Net Income US$710m, up 352% year over year
A Different Perspective
AMD has been firing on all cylinders this quarter and pushed production to the limits. They are managing demand, expanding capacity and introducing new products such as the AMD Radeon RX 6600 XT.
It is fair to also mention the risks for AMD:
- On the 3rd August 2021 China issued a statement announcing to launch an investigation into chipmakers for the automotive industry and severely punish price gauging, hoarding and driving up prices. This has the potential to affect companies that supply AMD with parts and products.
- AMD has major competitors such as Intel (NASDAQ:INTC) and NVIDIA (NASDAQ:NVDA), that have more resources and respective market share, and may engage in aggressive campaigns that have the potential to materially affect AMD's performance.
- AMD's stock price has recently hit an all-time high based on their strong quarterly report, it is natural to expect some downwards volatility in the short term, as the market adjusts and stabilizes the price.
Advanced Micro Devices provided a stock return of 40% over the year. That's fairly close to the broader market return.
A great quarter has prompted a surge in the price, which may be volatile in the short term.
AMD is increasing its bottom line and starting to accumulate serious profits that will attract investors. This is a great change from a few years ago when the company wasn't profitable. The company is forecasted to remain profitable and analysts may revise their estimates based on this quarter's performance.
To understand Advanced Micro Devices better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Advanced Micro Devices (including 1 which shouldn't be ignored) .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.