Valuation Expensive?
The 250% run in the stock price has stretched Nvidia’s valuation. Nvidia currently trades at a PE (ttm) of 77 and PS (ttm) of 10.33. The company’s EV/EBITDA ratio is 33.93. These valuations are way above the valuations of other semiconductor companies such as AMD and Intel. Of course, we can not look at valuation in isolation, we need to take growth into consideration. In the current year, the revenue is expected to grow by 36% and earnings by 120%. But this kind of growth is not sustainable. Analysts expect revenues to grow by 15% next year, while the earnings is expected to grow by 12%. Nvidia’s forward PE is currently at 43.5 which is not cheap, even for Nvidia’s kind of growth. (Also read: Don’t Sell NVDA Stock Before Reading This).
The Shorts Are Piling On
The shorts are increasingly betting against NVDA stock. Nvidia remains one of the most shorted stocks on the Nasdaq. The short interest has increased by 4% in last two reporting cycles, with short interest coming in at 14% of the float. The total shorted shares rose from 70.7 million to 71.4 million. But with days to cover at 5 days, a strong run-up in the price could send the shorts to take cover, resulting in a short squeeze. It is possible that shorts taking cover could have played a part in yesterday’s pop.
Conclusion
2016 has turned out to be an “annus mirabilis” for NVIDIA Corporation (NASDAQ:NVDA) investors. The stock has gained more than 250% this year. Goldman’s price target of $130 indicates that NVDA stock still has upside left. Many traders are betting the price to move even higher. Around 3,000 contracts were added during the past 10 days for March 130 call. But the rally has also stretched Nvidia’s valuations, with the stock currently trading at a forward PE of 43.5. RSI indicates that the stock is overbought and is headed for a correction. Also, the short interest has increased in the last two reporting cycles. However, the company’s long-term fundamentals remain strong. The company has been recently added as one of the top picks for 2017 by RBC capital. But despite having strong growth catalysts, it is unlikely that Nvidia will generate this kind of returns anytime soon. Don’t expect another 2016 kind of return from NVDA stock in 2017.
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The article NVIDIA Corporation (NVDA) Stock Is At All Time High, Should You Buy? originally appeared on amigobulls.com. Watch our analysis video on NVDA.
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