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Nvidia Corporation (NASDAQ:NVDA) discussed its F2Q 2014 Earnings yesterday. Chris Evenden, Senior Director, IR said on the call that, "PC game revenues are expected to reach around $20 billion annually by 2015, whereas the total for both PlayStations will be less than $10 billion and Xbox is only around half of that." Nvidia's Shield exploits the shift by gamers and according to CNET is a steal.

Based on preliminary financial results we analyze the company relative to its peers (list of peers is at the end of this post). The table below shows these results along with the recent trend for revenues, net income and returns.

 

 

Quarterly (USD million)2013-07-312013-04-302013-01-312012-10-312012-07-31
Revenues977.2954.71,106.91,204.11,044.3
Revenue Growth %2.4(13.7)(8.1)15.312.9
Net Income96.477.9174.0209.1119.0
Net Income Growth %23.8(55.2)(16.8)75.697.0
Net Margin %9.98.215.717.411.4
ROE % (Annualized)8.66.514.618.210.9
ROA % (Annualized)6.54.911.114.08.2
Valuation Drivers

Nvidia Corp.'s current Price/Book of 2.0 is about median in its peer group. The market expects less growth from the company than the median of its chosen peers (PE of 16.3 compared to peer median of 23.3) and for its current rates of return that are around peer median (ROE of 12.9%) to decline.

The company's asset efficiency (asset turns of 0.7x) and net profit margins of 13.1% are both median for its peer group. Nvidia 's net margin continues to trend downward but is still within one standard deviation above its five-year average net margin of 6.4%.

Is NVIDIA over-investing?

While Nvidia's revenues growth has been around the peer median (8.8% vs. 8.0% respectively for the past three years), the stock's below peer median PE ratio of 16.3 implies below median long-term growth as well. The market likely sees the company's long-term growth prospects to be fading.

Nvidia Corp.'s annualized rate of change in capital of 21.7% over the past three years is greater than the peer median of 16.4%. However, this investment level has only generated a peer median return on capital of 12.3% averaged over the same three years. This median return on an above median capital investment suggests the company is overinvesting.

Earnings Quality

NVDA's net income margin for the last twelve months is around the peer median (13.1% vs. peer median of 14.8%). This average margin combined with a level of accruals that is around peer median (10.0% vs. peer median of 10.4%) suggests there possibly isn't too much accrual movement flowing into the company's reported earnings.

The company's accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Peers for NVIDIA Corp.

NVIDIA Corp.'s analysis versus peers uses the following peer-set: Intel Corp. (NASDAQ:INTC), Texas Instruments Incorporated (NASDAQ:TXN), ARM Holdings PLC ADS (NASDAQ:ARMH), Broadcom Corp. Cl A (NASDAQ:BRCM), Altera Corp. (NASDAQ:ALTR), Linear Technology Corp. (NASDAQ:LLTC), STMicroelectronics N.V. (NYSE:STM), Advanced Micro Devices Inc. (NYSE:AMD) and Intersil Corp. Cl A (NASDAQ:ISIL).

NVDA: Free Fundamental Analysis Report (email registration required)

Disclaimer

Source: Will Shield Stop Nvidia's Growth From Fading?