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NVDA Is Over-Priced.

|Includes: NVIDIA Corporation (NVDA)

NVIDIA (NASDAQ:NVDA) is one of the best performed stocks in 2016. It moved 223% in 2016 - from $32.96 (as of close on December 31st of 2016) to $106.74 as of close on December 31st of 2016. This quite a remarkable up-move.

At this point, the NVDA stock lost about 2% from its highest high $108.69 (set on 12/28/2016). It may look like not a big deal, however, the NVDA stock lost this 2% on the extremely high volume. Despite the Holiday season when the entire stock market is traded on light volume, when the Nasdaq 100 was traded on 20% lover than average volume, when the S&P 500 was traded on almost half of its average volume, the NVDA stock was traded on 3 times its average volume! This rises the questions.

One of the main question is whether the NVDA stock is over-priced. The rest of the questions whether to buy, hold or sell it follows after.

As of now the NVDA's Diluted EPS is 1.52 and 5-year expected PEG ratio is 1.54 (source: http://finance.yahoo.com/quote/NVDA/key-statistics?p=NVDA). If you use this data to calculate intrinsic value of the company via Benjamin Graham's formula, you will get that the NVDA stock is traded 4.6 times above its actual value:
http://www.marketvolume.com/stocks/value.asp?s=NVDA&t=nvidia

From this point of view, yes, this stock is heavily overpriced. Despite heavy advertisement in the media, there are definitely some serious points to consider before buying this stock:

  • This stock already made 223% in 2016 and the odds it can make another 200% in 2017 are slim.
  • As of now this stock is heavily over-priced.
  • 4th quarter is over and 4th quarter earning reports are starting to come in the second half of January. The NVIDIA earning are coming on February 15, 2017. Since this stock has advanced greatly, the expectations are high. If earnings beat or meet the expectation, it will be ok. If the expectations are missed, we could be facing a strong decline.
  • A lot of the up-move on this stock was based on the hope of future earnings, if NVIDIA does not come up with something to keep this hope alive we may face heavy outflow of the investors from this stock.

During the earnings season we will have new expectations set for 1st quarter and for 2017 year. If the current numbers are not improved, this stock will continue to stay over-priced and it may negatively affect the NVDA trend. If the numbers are improved, this stock may become even under-priced.

Taking into account a huge increase in trading volume on this stock in the last week of 2016, we may diffidently say, there are a lot of NVDA nervous investors who is in rush to pocked earned profit. At the same time, there is a lot of investors who is buying - volume is 2-side transaction and there is a buyer for each seller. Right now, there is a "war" between Bulls and Bears for this stock. If nothing (except bragging in the media) comes out to cheer the Bulls, they may loose.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.