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 +3.9% compared to the Zacks S&P 500 composite’s +4.2% change. The Zacks Electronics – Semiconductors industry, which includes Advanced Micro, has gained 5.2% 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 cause a change in the trend of its stock and lead to an immediate change in price, there are always some fundamental factors that ultimately influence the decision to buy and hold.

Earnings estimate revisions

At Zacks, we prioritize assessing a company’s future earnings estimate change above all else. This is because we believe that the fair value of its shares is determined by the present value of its future earnings stream.

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 +15.5%. Over the past 30 days, the Zacks Consensus Estimate has moved -2.4%.

The consensus earnings estimate for the current fiscal year of $3.42 indicates a year-over-year change of +29.1%. These estimates have changed by -0.5% over the last 30 days.

The consensus earnings estimate for the next fiscal year of $5.18 represents a +51.3% change from the forecast Advanced Micro was expected to report a year ago. Over the past month, the estimate has changed by +2.3%.

Our proprietary Zacks Rank, a stock rating tool with a robust, outside-audited track record, provides a clearer picture of a stock’s near-term direction by effectively harnessing the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, along with three other earnings estimate factors, Advanced Micro earns a Zacks Rank #3 (Hold).

The story continues

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

12-month EPS

Revenue growth forecast

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

For Advanced Micro, the current quarter consensus sales estimate of $5.71 billion indicates a year-over-year change of +6.6%. Current and next fiscal year estimates of $25.29 billion and $31.71 billion represent +11.5% and +25.4% changes, respectively.

Recently reported results and surprise history

In the most recent quarter, Advanced Micro reported revenue of $5.47 billion, representing a year-over-year change of +2.2%. EPS of $0.62 for the same period compared to $0.60 a year ago.

Compared to the Zacks Consensus Estimate of $5.42 billion, reported earnings represent a surprise of +0.99%. The EPS surprise was +3.33%.

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

Quotation

No investment decision will be effective without taking stock valuation into account. When predicting the future price of a stock, it is important to determine whether its current price correctly reflects the real value of the company’s core business and development prospects.

Comparing the present value of a company’s valuation multiples, such as its price-to-earnings ratio (P/E), price-to-sales ratio (P/S) and price-to-cash flow (P/CF), with its own historical values ​​helps determine whether its the shares are fairly valued, overvalued or undervalued, and comparing the company with its competitors in terms of these parameters gives a good sense of how reasonable its share price is.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to rate stocks from A to F (An is better than B; B is better than C; etc. .) is very helpful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Advanced Micro has an F rating in this regard, which means it is trading at a higher price compared to other companies. Click here to see the values ​​of some of the valuation metrics that influenced this rating.

Bottom line

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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