A company’s PE ratio tells us the amount investors are willing to pay per dollar of EPS. During NVIDIA’s multiyear growth phase, NVIDIA’s PE ratio rose from 37.2x on July 31, 2016, to 51.0x on January 31, 2018. AMD is currently trading at a PE ratio of 83.07x because it has high leverage that lowers its EPS. Given its PE, some analysts say that AMD is expensive even for a growth stock.
However, the PE ratio is not the right measure for a growth company, as its expenses and leverage are high. Unlike NVIDIA, AMD has emerged from multiyear losses to profits. It will take AMD time to return to higher profit and positive cash flows, as a strong product roadmap has kept its expenses high.
If AMD turns out to be a multiyear growth story, we could see a significant boost in its stock price in 2019 and beyond.
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View more information: https://marketrealist.com/2019/02/interpreting-amds-stock-valuation/