AMD.

Whirrr. Your new laptop flickers to life for the first time since you tore the package off it. The computer turns on pretty fast, and you’re good to go in no time. Then you notice a small sticker on your laptop, near the keyboard. The small text reads: AMD. You look at it curiously. Then you think" “Hey! Are they on the stock market?” They are! - you exclaim 30 seconds later, having checked your phone. But are they a good investment - you wonder… But don’t keep at it! We’re going to help you! Let’s go! :) Packed-with memes on investing:

Stock Information

AMD is mainly known for their computer chips, and rightfully so, as they are a great competitor to Intel’s CPUs. They also make GPUs - a competition to Nvidia. They do have a differentiation factor to other chipmakers - they are the creator of chips both to Sony’s PlayStation, as well as Microsoft’s Xbox. They make chips which offer outstanding battery life and performance, as well as make desktop chips as well.

All of that in one single company, and one more thing… They don’t make the chips themselves, but rather outsource their production to companies like TSMC (Oh no! Taiwan - Darth Vader’s theme), in order to stay innovative. They design them themselves, instead of using the capital-heavy approach of Intel - which comes in handy, but may be a double ended sword.

But what are their competitors? Mainly Intel with their CPUs, but also Nvidia with their gaming and GPU division. My market share tool also shows a few other potential competitors, paid subscribers can access it here (30-day free trial, no commitments, cancel anytime):

https://market-share-chart.sketchthread.com/

Overall, it helps them a lot, as they have margins in this range (my tool used here):

We can see their gross margin is at 52.12%, showing room for margin expansion growth, which is really important, but they earn a small amount of money right now.

Ha ha! That’s exactly me! :)

Ok, so now we know what their business is like, now let’s see how they compare against other, similar companies, using my tool, which I developed:

We can see that AMD's metrics are terrible. Way under the median in the industry. The red and yellow colours mean that it’s under the median, of this metrics, as shown in the top of the chart.

Financial health

Nothing is more important than checking the health of a company before analysing it more. AMD here is no exception:

Very funny! But seriously, do you look at the debt before analysing a company or not, answer in comments! :)

125 blocks in each cube, which shows in a simple way, how much of its cash or equity is negative or positive, made using my tool (you won’t find it anywhere else - it’s world famous):

We can see that AMD’s fianncial health is absolutely superb! If they wanted to pay off all of their debt, using earnings, it would take them roughly 0.04 years. That’s almost nothing! A net cash position and a net equity position is what we like! Well done AMD! :)

Revenue growth

We are looking for companies, whose revenue growth is accelerating, or at least high (5-10%+) year over year, and is predictable. AMD’s in an industry which is cyclical in nature, but that doesn’t stop us from analysing them:

We can clearly see their Revenue being a bit flat over the past 2 years, with their revenue growth declining in the recenyt times. Their FCF has recently gone up, which is a nic advancement, altough you can see that it has been quite low for some time. Right now, it’s ok, but could be better.

Valuation

We don’t want to overpay for our investments, right? Well some people overpay, and a lot, based purely on speculation. We don’t do that. We want the fair value of AMD to be less than today’s share price. Let’s see what their fair value is, We’ll take an approach that is 100% maths-based, as we need to consider a few scenarios:

• Conservative scenario (4% revenue growth):

  

  Even with a small revenue growth rate, barely over inflation, we can see it’s almost a 2x return.

• A more optimistic scenario (10% revenue growth):

  Why 10? Looking at their history, it’s a pretty average growth rate for them, which isn’t too demanding, in my opinion.

• Disaster scenario (0% revenue growth):

  The worst that could happen is 0% revenue growth. When taht happens, we have AMD valued at:

  

• Benjamin Graham’s Classic Valuation comes in at

  

• Benjamin Graham’s Revised Valuation comes in at

  

We can see, that the majority of valuations give us an undervalued signal. That’s a positive thing! :) This feature will be coming to my app soon, which paid subscribers will be able to use - who likes it?!

Conclusion

Am I buying AMD? No, as I think that their position is highly dependent on companies like TSMC, and other manufacturers in Asia, as well as they are in competition with Nvidia - whosemoat almost anyone knows, as well as from government-backed Intel, so I wouldn’t be willingh to put my money here, even though it’s seriously undervalued. Also, buying more companies to my already 13 position portfolio isn’t the best idea. My thought is that if someone wants to buy a high-quality stock, at a discounted price, he may choose to buy AMD, which might benefit from the current chaos, altough it will be more unpredictable.

This isn’t financial advice. What do you think of AMD - I want to know your opinion as well!