Credo Technology Group (CRDO) Valuation in Focus After Strong Earnings Reversal and Upbeat Outlook

Credo Technology Group Holding (CRDO) just laid out an impressive earnings report for the first quarter, putting to rest last year’s loss with both surging revenue and a swing to profitability. Revenue soared to $223 million from about $60 million a year ago, and net income flipped from negative to a $63 million gain. In addition, management’s upbeat revenue and margin guidance for next quarter has caught the market’s eye, adding fuel to the conversation around Credo’s long-term prospects.

Not surprisingly, the stock’s momentum is hard to miss. Shares have climbed almost five-fold over the past year, and gains have only accelerated over the past three months. A recent resolution of a patent dispute also lowered legal overhang, further improving sentiment. This series of catalysts has many wondering if Credo’s story has shifted from turnaround to high-growth contender.

As expectations reset, the big question is whether the current price reflects ongoing growth ahead or if there is still more upside to uncover. Could now be a buying opportunity, or has the market already priced in these stellar results?

Most Popular Narrative: 34.7% Overvalued

The prevailing narrative views Credo Technology Group Holding as significantly overvalued based on consensus projections for future earnings and margin expansion.

While anticipated multi-year architecture upgrades and the shift toward 200G SerDes, PCIe Gen 6/7, and 1.6T solutions suggest ongoing market expansion, these trends are well-known and already reflected in high revenue and margin expectations. Any delay in industry adoption cycles or slower-than-expected protocol transitions could negatively impact future top-line growth and net margins.

Can you handle the truth about what is driving this rich valuation? Think you know the core assumptions behind these ambitious forecasts? Find out what analysts believe is powering this story and discover the one factor that could make or break its price target. The numbers may surprise you.

Result: Fair Value of $109.5 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, continued AI data growth and stronger customer diversification could bolster Credo’s sales trajectory. This could challenge the consensus view on its valuation.

Find out about the key risks to this Credo Technology Group Holding narrative.

Another View: SWS DCF Model Puts a Brake on Optimism

While many are watching revenue growth and industry multiples, our SWS DCF model offers a starkly different perspective. It currently suggests the stock is actually overvalued, casting doubt on the upbeat projections seen elsewhere. Which story will the market ultimately believe?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Credo Technology Group Holding for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Credo Technology Group Holding Narrative

If you see things differently or want to dig into the numbers firsthand, you can build your own story in just a few minutes. Do it your way

A great starting point for your Credo Technology Group Holding research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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. Simply Wall St has no position in any stocks mentioned.

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