With shares of NVIDIA (NASDAQ:NVDA) trading around $13, is NVDA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
NVIDIA is a visual computing company that develops graphics chips for use in personal computers, mobile devices, and supercomputers. The company operates through two segments: GPU and Tegra Processors. The GPU segment offers graphic processing unit processors for consumers desktop and notebook PCs, professional workstations, supercomputing servers and workstations, and industry-standard servers. The Tegra segment offers its processors to tablets, smartphones, and gaming devices. Personal computers, mobile devices, supercomputers, and servers are continuously being used and adopted at an increasing rate worldwide. NVIDIA provides essential components for technology products that affect most people’s home or work life so a company like NVIDIA is here to stay.
T = Technicals on the Stock Chart are Strong
NVIDIA stock has not seen too much positive movement in recent years. The stock seems to be struggling to find value as its price has chopped around over the last several years. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, NVIDIA is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of NVIDIA options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| NVIDIA Options | 34.93% | 86% | 85% |
What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| May Options | Flat | Average |
| June Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on NVIDIA’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for NVIDIA look like and more importantly, how did the markets like these numbers?
| 2012 Q4 | 2012 Q3 | 2012 Q2 | 2012 Q1 | |
| Earnings Growth (Y-O-Y) | 49.83% | 13.79% | -24% | -54.55% |
| Revenue Growth (Y-O-Y) | 16.13% | 12.94% | 2.73% | -3.86% |
| Earnings Reaction | 2.91% | -3.86% | -0.61% | 6.36% |
NVIDIA has seen increasing earnings and revenue figures for most of the last four quarters. From these figures, the markets have been mixed on NVIDIA’s recent earnings announcements.
P = Average Relative Performance Versus Peers and Sector
How has NVIDIA stock done relative to its peers, Intel (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD), Qualcomm (NASDAQ:QCOM), and sector?
| NVIDIA | Intel | AMD | Qualcomm | Sector | |
| Year-to-Date Return | 12.07% | 15.42% | 14.38% | -0.18% | 13.83% |
NVIDIA has been an average performer, year-to-date.
Conclusion
NVIDIA provides valuable mobile, personal computer, supercomputing, and server products to a multitude of consumers and businesses operating in different industries around the world. The stock has struggled to establish a consensus price in recent years but is now setting up to move higher. Earnings and revenue have increased during most of the last four quarters but investors have not been fully convinced. Relative to its peers and sector, NVIDIA is an average performer, year-to-date. WAIT AND SEE how NVIDIA stock reacts during this coming earnings announcement.
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