Nvidia currently trades at $231.49 and has been a dream stock for shareholders. It’s returned 1,073% since October 2021, blowing past the S&P 500’s 77.9% gain. The company has also beaten the index over the past six months as its stock price is up 30.5% thanks to its solid quarterly results.
Following the strength, is NVDA a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Are We Positive on NVDA?
Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ:NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Nvidia’s 69.1% annualized revenue growth over the last five years was incredible. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Nvidia’s EPS grew at 82.6% compounded annual growth rate over the last five years, higher than its 69.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Nvidia has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 42.5% over the last two years.
Final Judgment
These are just a few reasons why Nvidia is one of the best semiconductor companies out there, and with its shares beating the market recently, the stock trades at 18.9× forward P/E (or $231.49 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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