Here’s What You Should Know Beyond Why NVIDIA Corporation (NVDA) is a Trending Stock – November 21, 2022

NVIDIA (NVDA Free Report) has been one of the most searched stocks on Zacks.com lately. So, you should look at some of the facts that could affect the stock’s performance in the short term.

Over the past month, shares of this maker of graphics chips for games and artificial intelligence have returned +23.6%, compared to a +6.8% change in the Zacks S&P 500 Composite. During that period, the Zacks Semiconductor – General industry, which includes Nvidia, is up 23.1%. The crucial question now is: What could the future direction of the stock be?

While news releases or rumors of a material change in a company’s business prospects will usually “trend” the stock and result in an immediate price change, there are always some basic facts that ultimately drive the buy-and-hold decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing the change in a company’s earnings outlook. This is because we believe the fair value of its stock is determined by the present value of its future income streams.

Essentially, our analysis is based on how sell-side analysts who cover the stock revise their earnings estimates to reflect the latest business trends. As earnings estimates for a company increase, so does the fair value of its stock. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing its price to move higher. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Nvidia is expected to report earnings of $0.81 per share for the current quarter, a -38.6% year-over-year change. In the last 30 days, the Zacks consensus estimate is down -4.6%.

Consensus earnings estimate of $3.38 for the current fiscal year indicates a change of -23.9% year-on-year. This estimate has changed by +0.2% in the last 30 days.

For the next fiscal year, the consensus earnings estimate of $4.44 indicates a +31.4% change from what Nvidia was expecting a year ago. Over the past month, the estimate has changed by -2.1%.

Our proprietary stock ranking tool, the Zacks Rank, has a strong, third-party audited track record and provides a more meaningful picture of a stock’s near-term price action by effectively harnessing the power of earnings estimate revisions. Based on the magnitude of the recent consensus estimate change and three other factors related to earnings estimates, Nvidia earns the Zacks #4 rank (Sell).

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

12 Month EPS

12-Month Consensus EPS Estimate for NVDA _12MonthEPSChartUrl

Sales Growth Forecast

While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow its revenue. It’s almost impossible for a company to grow its profits without increasing its revenue over long periods of time. Therefore, knowing a company’s potential revenue growth is crucial.

For Nvidia, consensus revenue estimate for the current quarter of $6.02 billion indicates a -21.3% year-on-year change. For the current and next fiscal year, estimates of USD 27.01 billion and USD 29.55 billion indicate changes of +0.3% and +9.4%, respectively.

Latest reported results and surprise history

Nvidia reported revenue of $5.93 billion for the most recent reported quarter, a -16.5% year-over-year change. EPS of $0.58 for the same period compared to $1.17 a year ago.

Compared to the Zacks Consensus estimate of $5.93 billion, reported earnings represent a surprise of +0.02%. The EPS surprise was -17.14%.

Over the past four quarters, Nvidia has twice beaten consensus estimates for earnings per share. The company beat consensus sales estimates every time during this period.

valuation

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

Comparing the current value of a company’s valuation multiples, such as B. Price to Earnings (P/E), Price to Sales (P/S), and Price to Cash Flow (P/CF), with its own historical values ​​help determine whether the stock is Fairly Valued, Overvalued or Undervalued while making the comparison of the company relative to its peers based on these parameters gives a good indication of how reasonable the stock price is.

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 from A to F (A is better than B; B is better than C; and so on), making it helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.

Nvidia is rated F on this front, indicating it’s trading at a premium to its peers. Click here to view the values ​​of some of the assessment metrics that led to this grade.

bottom line

The facts discussed here and plenty of other information on Zacks.com might help determine whether or not the market clamor surrounding Nvidia is worth paying attention to. However, its No. 4 Zacks rank suggests it could underperform the broader market in the near term.



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