Facts you need to know before placing a bet

Advanced Micro Devices (AMD) has been one of the most searched stocks on Zacks.com lately. It is therefore worth taking a look at some facts that may affect share prices in the near future.

Over the past month, shares of this chipmaker have moved -16.4% compared to the Zacks S&P 500 composite’s move of -4.3%. The Zacks Electronics – Semiconductors industry, which includes Advanced Micro, lost 4% during this period. The key question now is: what could be the future direction of the stock?

While media reports or rumors about significant changes in a company’s business prospects usually make its shares gain popularity and lead to an immediate price change, there are always certain fundamental facts that ultimately dominate the buy-and-hold decision-making process.

Earnings estimate revisions

Rather than focusing on anything else, at Zacks we prioritize assessing company earnings estimate revisions. This is because we believe the fair value of a company’s stock is determined by the present value of its future earnings streams.

We essentially look at how sell-side analysts of a stock are revising their earnings estimates to reflect the impact of recent business trends. And if the company’s earnings estimates increase, the fair value of its stock will increase. A higher fair value than the current market price increases investor interest in purchasing the stock, which leads to an increase in its price. That’s why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements.

Advanced Micro is expected to report current quarter earnings of $0.67 per share, representing a year-over-year change of -27.2%. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

The consensus earnings estimate for the current fiscal year of $3.49 represents a +25.1% change from the prior year. These estimates have not changed over the last 30 days.

The consensus earnings estimate for the next fiscal year of $3.52 represents a +0.8% change from what Advanced Micro was expected to report a year ago. Over the past month, the estimates have not changed.

With its impressive, outside-audited track record of performance, our proprietary Zacks Rank tool is a more reliable indicator of near-term stock movement by effectively harnessing the power of earnings estimate revisions. The magnitude of the recent consensus change, along with three other earnings estimate factors, resulted in a Zacks Rank #3 (Hold) for Advanced Micro.

The chart below shows the evolution of the company’s 12-month consensus EPS estimate:

12-month EPS

Forecasted revenue growth

While a company’s earnings growth is probably the best indicator of its financial health, nothing much will happen if it can’t grow its revenues. It is almost impossible for a company to grow its profits without increasing its revenues over long periods of time. Therefore, it is crucial to know the potential revenue growth of the company.

For Advanced Micro, the consensus sales estimate of $5.53 billion for the current quarter indicates a year-over-year change of +14.5%. The $23.53 billion and $24.59 billion estimates for the current and next fiscal years indicate changes of +43.2% and +4.5%, respectively.

Recently reported results and surprise history

Advanced Micro reported revenue of $5.57 billion in the most recent quarter, representing a +29% year-over-year change. EPS of $0.67 for the same period compared to $0.73 a year earlier.

Compared to the Zacks Consensus Estimate of $5.58 billion, reported earnings represent a surprise of -0.28%. The EPS surprise was 0%.

Advanced Micro has topped consensus EPS estimates three times over the last four quarters. During this period, the company topped consensus revenue estimates three times.

Quotation

No investment decision will be effective without taking stock valuation into account. Whether the current share price accurately reflects the true value of a company’s core business and growth prospects is an important determinant of its future price performance.

By comparing the current values ​​of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values, they help determine whether its the shares are fairly valued, overvalued or undervalued. Comparing the company with other companies in terms of these parameters gives a good sense of the rationality of the share price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) divides stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Advanced Micro has a C rating in this regard, which means it rates on par with its competitors. Click here to see the values ​​of some of the valuation metrics that influenced this rating.

Application

The facts discussed here and much more on Zacks.com can help you determine whether the market buzz around Advanced Micro is worth paying attention to. However, the Zacks Rank of #3 suggests that it could outperform the broader market in the near future.

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