The past six months have been a windfall for AMD’s shareholders. The company’s stock price has jumped 147%, hitting $530.48 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy AMD? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does AMD Stock Spark Debate?
Founded in 1969 by a group of former Fairchild semiconductor executives led by Jerry Sanders, Advanced Micro Devices (NASDAQ: AMD) is one of the leading designers of computer processors and graphics chips used in PCs and data centers.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, AMD’s 26.8% annualized revenue growth over the last five years was incredible. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect AMD’s revenue to rise by 47.6%, an improvement versus its 26.8% annualized growth for the past five years. This projection is eye-popping for a company of its scale and implies its newer products and services will catalyze better top-line performance.
One Reason to Be Careful:
Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Although AMD has shown solid fundamentals lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.6%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.
Final Judgment
AMD’s merits more than compensate for its flaws, and with the recent surge, the stock trades at 59.6× forward P/E (or $530.48 per share). Is now the time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.
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