Is NVIDIA Corporation (NASDAQGS:NVDA) Overvalued at 97.44x Price To Earnings?

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NVIDIA Corporation (NASDAQGS:NVDA) is currently trading at $534.44, at approximately 90.7% of its 52-week high of $589.07. With the stock price up 174.5% in the last year, investors are worried that the company is getting too expensive. So, is NVIDIA Corporation overvalued? In this article, we’ll discuss NVIDIA Corporation’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering NVIDIA Corporation’s latest twelve months revenue/share of $21.15 and using the company’s 5-year average price to sales of 10.93x as a benchmark, we have a fair value of $231.23, which is -56.7% lower than the current price.

With no surprise, we can see that NVIDIA Corporation’s price to sales of 25.3x is much higher than its 5-year average of 10.9x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart Engine

Absolute Valuation: NVIDIA Corporation DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze NVIDIA Corporation with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 22.3%, an average EBITDA margin forecast of 27.6%, a discount rate of 10.0%, and a terminal EBITDA multiple of 27.8x, we get a fair value of $272.9.

So, Is NVIDIA Corporation Overvalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, NVIDIA Corporation’s fair value is $379.38, representing a -29.0% downside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: NVIDIA Corporation

NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming and mainstream PCs; GeForce NOW for cloud-based gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for artificial intelligence (AI) utilizing deep learning, accelerated computing, and general purpose computing; GRID, which provides power of NVIDIA graphics through the cloud and datacenters; DGX for AI scientists, researchers, and developers; and EGX for accelerated AI computing at the edge.

The Tegra Processor segment provides processors comprising SHIELD devices and services designed to harness the power of mobile-cloud to revolutionize home entertainment, AI, and gaming; AGX, a power-efficient AI computing platform for intelligent edge devices; DRIVE AGX for self-driving vehicles; Clara AGX for medical instruments; and Jetson AGX for robotics and other embedded use.

The company’s products are used in gaming, professional visualization, datacenter, and automotive markets. NVIDIA Corporation sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, Internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants. NVIDIA Corporation was founded in 1993 and is headquartered in Santa Clara, California.

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