Facts to Know Before Betting on It

Facts to Know Before Betting on It

Advanced micro-systems (AMD) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.

Shares of this chipmaker have returned +19.9% ​​over the past month compared to the +6.7% change in the Zacks S&P 500 composite. The industry Zacks Electronics – Semiconductors, to which Advanced Micro belongs, gained 8.5% over this period. Now the key question is: where could the stock be heading in the near term?

Although press releases or rumors about a substantial change in a company’s trading outlook will usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.

For the current quarter, Advanced Micro is expected to post earnings of $1.03 per share, indicating a +63.5% change from the prior year quarter. The Zacks consensus estimate has changed -1.3% over the past 30 days.

The current year earnings consensus estimate of $4.35 indicates a year-over-year change of +55.9%. This estimate has changed by -0.6% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $4.84 indicates a change of +11.4% from what Advanced Micro is expected to report a year ago. Over the past month, the estimate has changed by -2.7%.

With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Advanced Micro is ranked Zacks Rank #3 (Hold).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

12-Month EPS Consensus Estimate for AMD _12MonthEPSChartUrl

Revenue Growth Forecasts

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a company.

In the case of Advanced Micro, the consensus sales estimate of $6.52 billion for the current quarter indicates a year-over-year change of +69.4%. Estimates of $26.26 billion and $29.59 billion for the current and next fiscal year indicate changes of +59.8% and +12.7%, respectively.

Latest reported results and history of surprises

Advanced Micro reported revenue of $5.89 billion in the last quarter, representing a year-over-year change of +70.9%. EPS of $1.13 for the same period versus $0.52 a year ago.

Compared to the Zacks consensus estimate of $5 billion, reported revenue is a surprise +17.73%. Surprise EPS was +24.18%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.

Evaluation

No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.

While comparing the current values ​​of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of the stock price .

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on.), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.

Advanced Micro is rated C on this front, indicating that it trades at par with its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about Advanced Micro. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

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