NVDA
NVIDIA
-- 109.670 TSLA
Tesla
-- 263.550 CRWV
CoreWeave
-- 40.000 PLTR
Palantir
-- 85.850 LULU
Lululemon Athletica
-- 293.060 Is Nvidia a buy at $500 or strong sell?
Nvidia $NVIDIA (NVDA.US)$ is on a tear this year in 2023 with almost 240% gain as of September 1 closed. Recently there has been some battling around $500 mark. In general, one would think NVDA should be very expensive at this point and it's a strong sell at $500, but is it though?
92.4 trailing P/E on surface is outright expensive, we need to understand trailing P/E doesn't tell us the company's future growth. For example, we often see Banking sector trading around 10 P/E, why? because its growth is projected to be flatish in the future. So if P/E is not a good measurement of growth stock, what is? Either PEG ratio or forward P/E is a better alternative.
Let's look at PEG ratio first, PEG ratio is defined at P/E divided by Annual EPS growth. So if we look 3 years out, EPS for NVDA in 3 years is around $17 per share, current EPS is $5.25 per share, that's about 48% growth per year over the next 3 years. We then took 92.4/48 = 1.9. According to textbook, anything below 1 is a bargin and PEG of 1.9 certainly isn't cheap.
Now let's look at forward P/E, as underscored below, NVDA's forward P/E at calendar year 2026 is 25.4 which is quite reasonable only if they will continue to grow ~15-20% EPS a year beyond 2026. But market is always priced on a relative basis which means if the market is expensive, everything should be expensive. Not surprisingly, one would think Apple $Apple (AAPL.US)$ is a value pick, and guess what? its forward PE in 2.5 years is 25.1, which means NVDA and AAPL are equally expensive or cheap based on forward P/E.
Conclusion: P/E is one of the worst measurements to use when evaluating a growth company, using PEG or forward P/E will better facilitate our thinking around what is the fair value of a growth company.
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Love doing research on companies, macro and hot financial topics
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Haymaker78 : Look at the insider’s selling activity. The president of the company sold $110 million dollars of his stock last week.