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NVIDIA: 'Unbelievably Cheap'

 December 13, 2012 10:06 AM

by Ian Wyatt, editor Top Stock Insights

NVIDIA (NVDA) has been on a steady retreat since topping near $15 in August. In fact, the recent selling is only part of a much larger decline. NVDA was a $25 stock in early 2011.

The stock has been dragged lower during the past two years because PC sales have flatlined. Many analysts believe that the PC era is over.

NVIDIA is a major supplier of the graphics chips inside PCs. So a decline in PC demand hurts NVIDIA's business.

However, Wall Street seems to have forgotten that the company branched out beyond PCs. Their graphics cards, specifically Tegra and Icera, are in mobile devices - including Google's Nexus and Microsoft's SurfaceRT.

[Related -NVIDIA Corporation (NVDA) Q3 Earnings Preview: Can We See Another Beat?]

This segment of NVIDIA is expected to grow sales by 50% in 2013. Moreover, TI exited the tablet industry, paving the way for another company to supply graphics processors for the Amazon.com Kindle lineup.

In addition to the future growth opportunities from mobile and handhelds, NVIDIA has an amazing balance sheet. The company boasts more than $3.75 billion in cash and investments with almost zero debt ($20 million).

This cash balance also enabled the company to initiate a 2.5% dividend this year. Furthermore, that cash balance equates to nearly $6 per share and takes the company's enterprise value down to about $4 billion.

Analysts expect the company to report EPS of $0.86 this year, giving the stock a P/E ratio of 14. However, if we take out the cash and recalculate, the ratio declines to seven.

[Related -Nvidia Corporation: Ramping Tegra 4 In 2H May Compress Current Gross Margins]

NVIDIA may not be the growth juggernaut it was in the past. However, it's transitioning into growing segments and gaining market share, too.

Additionally, the shares are unbelievably cheap now, trading at seven times the enterprise value. We believe the stock could soar to $17 next year, and any price that's below $14.50 provides you with a great entry.

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