What a time it’s been for Nvidia. In the past six months alone, the company’s stock price has increased by a massive 50.4%, reaching $182.58 per share. This run-up might have investors contemplating their next move.
Is now still a good time to buy NVDA? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Are We Positive On NVDA?
Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ: NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Nvidia’s sales grew at an incredible 66.1% compounded annual growth rate over the last five years. 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 (which can sometimes offer opportune times to buy).
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Nvidia’s EPS grew at an astounding 79.5% compounded annual growth rate over the last five years, higher than its 66.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Nvidia has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 45.4% over the last two years.
Final Judgment
These are just a few reasons why we think Nvidia is an elite semiconductor company, and with the recent rally, the stock trades at 33.5× forward P/E (or $182.58 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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