Nvidia: Stock Drops on Lower Guidance

Graphics chip maker NVIDIA (NVDA), the most actively traded stock on the NYSE and Nasdaq on Thursday, dropped 30% after it announced much lower guidance for second quarter revenue, and a $150-$200 million charge for product malfunctions (NVDA Press Release).

The company estimated revenue between $875-$950 million for the 2nd quarter versus Wall Street estimates for $1.1 billion. 

The stock was absolutely crushed, down 30% on massive volume - 74 million of the firms 555 million outstanding shares, 13%, traded hands in Thursday’s shortened session (NVDA 1 Year Chart), and was trading at levels not seen since the Summer of 2006. This is more than 50% below its 200 day moving average.

NVIDIA is tempting here on a valuation basis.  The company has $1.6 billion in cash and no debt, which means that its enterprise value (Market Cap + Net Debt) is $5.8 billion.  The company earned $967 million over the last four quarters for a trailing multiple of 6. 

Even if revenues and earnings come down from these levels, the shares could still be attractively priced.  For instance, even if earnings get cut in half, we’re only talking about a 12 forward multiple.  That strikes me as a pretty good “margin of safety.” 

One concern is that many NVIDIA holders were out of the office on Thursday and will sell when they return on Monday, pushing shares down even more.  However, potentially, there will also be more buyers Monday.  I like NVIDIA for a trade here.

Disclosure: Top Gun is long NVIDIA shares.

Comments

[AmesTiedeman]

NVDA seems like a bargain under 12 for the longer term investor. Does anyone think Intel might come in and buy them?