Nvidia Corp. (Nasdaq: NVDA)’s growth has been and is astounding.
It’s firing on every level.
Over a 5 year period, the growth in gaming, data centers, automobile and even the weakest segment of professional visualization has launched Nvidia into one of the fastest growing companies.
Many people think Nvidia’s growth is a result of crypto currency mining, but not so. It brings in nice revenue, but it is a single digit percentage in total sales. The majority comes through gaming and data centers and the growth expected from these two segments doesn’t seem to be slowing down.
Datacenters are cyclical, but with the way the tech industry is evolving at a rapid pace, bigger need for better graphics, improved software development processes and non-stop consumption of digital media, and it all has to come from somewhere. Software from companies like Adobe (ADBE) and hardware from companies like Nvidia all benefit from the changing industry landscape.
Stock prices don’t give much information, but when you look at AMD and Nvidia side by side, you can tell Nvidia is doing something different.
So how did Nvidia get on this list in the first place?
- Sales 5YR CAGR of 41.88%
- Gross Profit 5YR CAGR of 21.2%
- GPA of 0.59
- FCF 5YR CAGR of 19.36%
Backwards looking valuation methods do not work on Nvidia. As much as I’m a fan of FCF, I won’t bother trying to run my 10year DCF model here.
Multiples also look expensive on the surface, but Nvidia is proving like Amazon that it is growing into their current “expensive” numbers.
In this valuation using 3 years EBIT multiple average, Nvidia is doing just that. It’s growing into its valuation.
Yes a company with a typical EBIT multiple of 37x is absurd. But if the company is seeing strong sales and profit and the fundamentals are matching it stride for stride, there’s no problem with that.
I own Nvidia based on my quant strategy bucket. Based on the ratings that we’ve created at Old School Value, it scores highly with a slight ding for valuation. The Action Score of 78/100 puts it in a solid B grade category overall when we measure Quality, Value and Growth combined.
Let me be clear. At current prices, I would not make Nvidia into a 10% position.