AMD Stock Leaped 10% Last Week – What Happens Now?
AMD stock (NASDAQ: AMD) jumped more than 10% in the last 5 trading days, posting a much higher gain than the broader market which moved a little under 1%. What’s interesting is that AMD is now at an all time high! Does that mean that we can expect exhaustion in the momentum? Or could this result in a a strong bull run in the coming months? We have to look at how the stock has behaved in the past as well as the trend in the underlying financials to understand if AMD could be a good investment now. Our verdict – AMD can be a near term momentum play but from a long-term perspective, investors may be better off buying at more appropriate levels once the momentum exhausts and there is a correction in prices.
First, we look at the output of our AI engine which analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period. It suggests nearly a 11% return for AMD over the next 3 months, and a significantly higher 25% return over the next 6 months. This is how the stock has typically behaved in the past following a 10% climb in a single week. Our detailed dashboard highlights the expected return for AMD given its recent move, and can help you understand near-term return probabilities for different levels of movements. Second, we look at the underlying fundamental support. Turns out, that support exists but may not be very strong. Our dashboard Big Movers: Advanced Micro Devices Moved 10.2% – What Next? lays out critical financial metrics. While the trends are certainly suggestive of strong growth, the valuation appears lofty.
After last week’s move, AMD’s stock price is now up more than 100% this year, creating a record high. So what does this translate into as far as the valuation is concerned? Let’s take a quick look at the multiples. At the beginning of this year, AMD’s trailing 12 month P/S ratio was 7.43. This figure increased 61.1% to 11.98, before ending at 13.2 suggesting a much higher valuation. Compared to this, the figure for its peers NVDA, INTC, and AMAT stands at 22.91, 2.76 and 4.58 respectively. Only Nvidia NVDA is sitting at a loftier valuation, while the rest are significantly below AMD. This puts the possibility of AMD’s valuation going further up in question. Is this high multiple justified? Let’s check out the underlying financial growth to answer this. AMD’s revenue has increased 28.1% from $5,253 Mil in 2017 to $6,731 Mil in 2019. For the last 12 months, this figure stood at $8,646 Mil, implying an increase of 28.5% over 2019 numbers. This translates roughly into average annual growth of around 18%. In addition, the company’s net margins have increased massively from -0.6% in 2017 to 5.1% in 2019, and climbed further to 10.2% in the last 12 months. Clearly, the trend is suggestive of strong growth.
Considering the output of our AI engine, and the trend in the underlying financials, we conclude that there is a good chance for the near term momentum to continue. However, we also remain cautious about a current entry point from a long-term investment perspective as the valuation appears high.
MORE FOR YOU
But what if you are looking for a diversified portfolio? Check out a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams