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Should You Think About Buying NVIDIA Corporation (NASDAQ:NVDA) Now?

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Simply Wall St
·4 min read
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Today we're going to take a look at the well-established NVIDIA Corporation (NASDAQ:NVDA). The company's stock saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$613 and falling to the lows of US$505. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether NVIDIA's current trading price of US$532 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at NVIDIA’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for NVIDIA

What's the opportunity in NVIDIA?

NVIDIA appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that NVIDIA’s ratio of 75.81x is above its peer average of 38.89x, which suggests the stock is trading at a higher price compared to the Semiconductor industry. But, is there another opportunity to buy low in the future? Given that NVIDIA’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of NVIDIA look like?

earnings-and-revenue-growth
earnings-and-revenue-growth

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. NVIDIA's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in NVDA’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe NVDA should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on NVDA for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for NVDA, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing NVIDIA at this point in time. At Simply Wall St, we found 2 warning signs for NVIDIA and we think they deserve your attention.

If you are no longer interested in NVIDIA, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.