What Is Advanced Micro Devices, Inc.'s (NASDAQ:AMD) Share Price Doing?

By
Simply Wall St
Published
January 06, 2022
NasdaqGS:AMD
Source: Shutterstock

Let's talk about the popular Advanced Micro Devices, Inc. (NASDAQ:AMD). The company's shares saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on Advanced Micro Devices’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Advanced Micro Devices

Is Advanced Micro Devices still cheap?

Advanced Micro Devices appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 41.43x is currently well-above the industry average of 28.9x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Advanced Micro Devices’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Advanced Micro Devices look like?

earnings-and-revenue-growth
NasdaqGS:AMD Earnings and Revenue Growth January 6th 2022

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 27% over the next couple of years, the future seems bright for Advanced Micro Devices. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in AMD’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe AMD should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on AMD for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for AMD, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Advanced Micro Devices at this point in time. Be aware that Advanced Micro Devices is showing 2 warning signs in our investment analysis and 1 of those makes us a bit uncomfortable...

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