Intel's (INTC) stock price fell by around 21% in the last one year. While the popular analysts' opinion is that Intel is a hold, let us dig deeper to know the full story.
Looking at the price graph below, we can be certain that the stock price is currently below the average trend line. Keeping this in mind, it can be said that Intel's price should go up very soon.
To confirm that, let us take a look at the last five-year P/E ratio (TTM) graph of the company. It seems that the company is already trading quite cheaper compared with three years ago.
Even when compared with its immediate peers, it seems pretty cheap. Marvell Tech Group, Qualcomm and Broadcom seem to trading at valuations far higher than that of Intel.
Qualcomm, Inc. (QCOM)
STMElectronics ADR (STM)
Nvidia Corp. (NVDA)
Advanced Micro Devices (AMD)
Marvell Tech Group (MRVL)
Broadcom Corp. (BRCM)
Moreover, Intel seems cheap compared with the fact that it still owns 8% share of the mobile ICs market as of January this year (compared with 52.3% of Qualcomm, it is pretty low though). Additionally, market share of Intel in the PC microchips market increased to 83.3% in Q3 2012, up from 80.6% in the same quarter a year ago. Meanwhile, for the first time in several years the share of AMD's microprocessors on the x86 market dropped to 16.1% from 18.8% in Q3 2011, reported IDG News Service. Market share of Via Technologies was 0.6%. And we can only say that it will rise up from here, with Intel's brand intact in the semiconductors market. Needless to say, it will affect the future P/E ratio of the company positively.
Regarding the microprocessor market, it has come a long way since Intel 8080 was first introduced in 1974. The global annual semiconductor market is expected to reach near $400 billion dollars by the end of 2015. For the record though, the first microprocessor to make a real splash in the market was the Intel 8088, introduced in 1979 and incorporated into the IBM PC, which first appeared around 1982.
In short, the semiconductor market is going to grow exponentially in the next couple of years. And needless to say, Intel has the innate brand potential to profit from this whole action.
Having talked about the prospective revenue growth of the company, it is time to look at the company fundamentals a bit.
Intel's margins did not show enough growth in 2012. That might have led to the decline of the stock price so sharply. But, the good news is that Intel has been investing in research and development heavily for the last two years, and it will probably bring in results in the coming few years. Although it might have affected the bottom line in the last couple of years, I would expect the trend to reverse in the next two years.
Having said that, it should be reminded that the profitability margins are still better than the rest. Take a look at the table below. It is obvious that Intel is ahead of the rest (except for Qualcomm, of course) when it comes to profitability.
Return On Investment %
Gross Margin %
Operating Margin %
Net Margin %
Advanced Micro Devices
Marvell Tech Group
Even the balance sheet boasts of increasing net plant, property and equipment worth $28 billion as of January, 2013. All these heavy capital expenditure will reap benefits for years to come. Although there have been instances of surging long-term debt, we can rest assured on the fact that it is 'long' in term. That will cut the company some slack to amortize the debt right away. And this is exactly what is called 'economic moat' in financial terminology. The huge size of Intel and its heavy presence in the semiconductor market is going to turn the game around for Intel.
And what's better is that Intel's dividend rose to above 4% over the last three years. This again confirms that the stock price has a strong chance to soar back.
And the last but not the least point - let us take a look at the technical chart of Intel.
With Bollinger bands tightening up, there is indecision in the market. The 'lower lows and higher highs' of the Chaikin MF indicator and the MACD divergence index specify that there might be an uptrend. Remember, this is a bit lagging in nature and includes volume as well. In regards to volume, both the PVT and the OBV lines show that volume strength is gradually going down for the downslide in prices. It might be time to go up, confirmed by a RSI signal of 60-ish.
To sum it up, I would say Intel is a buy at the moment. Don't expect a huge price rise in the short term though. Considering the strong fundamentals, higher mobile-oriented focus and concern of shareholders' interests, Intel seems to be value buy. And, with better market performance in the next year or two, the price should shoot up immensely. There is a strong chance for that to happen.
Additional disclosure: Numerical data are for comparison only. They vary according to sources.