If you’ve been paying attention to tech stocks over the past few year or so, one name has emerged as the most exciting growth opportunity in the industry: Nvidia (NVDA - Free Report) . Shares of this remarkable graphics chip manufacturer have soared more than 58% in 2017 alone, and so long as the tech sector stays hot, Nvidia is showing very few signs of slowing down.
Of course, Nvidia is also a perfect example of investors tossing several traditional valuation metrics to the wind. At 46x earnings and 11x sales, this stock isn’t cheap—but in today’s tech sector, even the priciest stocks can still provide solid returns.
However, the introduction of some fresh volatility has hampered tech stocks recently. This once red-hot sector has plateaued over the past month or so, and investors look ready to slow things down and reevaluate as we begin to wrap up the calendar year.
So is it too late to be buying Nvidia right now, or does this investor favorite still have some profits to produce in the latter portion of 2017? Let’s take a closer look.
Fundamental Outlook
As we dive into Nvidia’s financials, let’s check out some of the company’s key fundamentals:
As we can see, Nvidia is currently sporting an “A” grade for Momentum in our Style Scores system. With an “F” for Value and “C” for Growth, this category is clearly Nvidia’s strongest—and this makes sense given the stock’s insane price action over the past year.
Still, Nvidia has pin-balled around over the last couple of weeks, and the stock currently sits about 5% below its 52-week high of $174.56 per share. This means that NVDA actually has some room to grow before it attempts to break into a new range, which should interest investors that worry about buying a stock at the very top of its 52-week high.
What’s more, the company looks poised to deliver impressive growth in several key areas. For one, the Zacks Consensus Estimate is currently calling for EPS growth of 40.13% this fiscal year. Nvidia has also surpassed our consensus estimate by an average of 35% in each of the trailing four quarters, so it would hardly be a surprise if the company outperformed again, surpassing this expected growth rate in the process.
Furthermore, Nvidia is absolutely raking in the cash right now. In fact, the company’s current cash flow growth is significantly better than the 18.34% average cash flow growth it has recorded over the past three to five years. This implies that Nvidia’s financial position is improving, which should benefit the company long-term as it attempts to transition from exciting growth prospect to established industry leader.
Also, we should note that our current consensus estimates are calling for Nvidia to post GPU sales of $7.45 billion this fiscal year. Last year, the company recorded sales of $5.82 billion in this all-important segment, so this result would represent strong year-over-year growth.
Nvidia owes a lot of this growth to the continued strength of the gaming market, as its top-of-the-line graphics processors are a favorite among hardcore PC gamers. But on top of this, Nvidia and other GPU makers like AMD (AMD - Free Report) have benefitted from increased demand from cryptocurrency miners.
As the prices of popular digital currencies like Bitcoin and Ethereum have soared, more and more users are building personal super-computers to “mine” them. This has resulted in an entirely new market for Nvidia, whose high-end GPUs provide the power that these miners need.
Overall, this new market speaks to the greatest strength for Nvidia right now: potential. Even with its remarkable growth to this point, Nvidia stands to benefit even more from the advent of artificial intelligence and self-driving cars—two emerging markets that it is already a dominant leader in.
Of course, we also need to point out that Nvidia is currently a Zacks Rank #1 (Strong Buy).
Earnings Estimate Revisions
Remember, the Zacks Rank is heavily influenced by earnings estimate revisions, so let’s check out a quick snapshot of the revision activity we have seen for Nvidia recently:
As is pretty obvious from the above snapshot, Nvidia’s estimate revision activity has been incredibly strong recently. We’ve seen significant improvements and unanimous analyst agreement for each of the company’s upcoming fiscal periods, including next year.
Here at Zacks, we believe these positive revisions are one of the best available indicators of future share price performance. These analysts spend hours poring over all of the latest financial information, so if they feel like the company’s outlook is improving, it’s typically a good sign.
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