How much does NVIDIA stock worth? I think it is a million-dollar question, maybe it is a multi-million-dollar question. When I try to look into investment in companies stocks, I usually like to focus on two big areas. One is company’s financial health, and the other is company’s valuation. The company’s financial health tells me two things –
- Does the company has competitive advantage over its competitors?
- Will the company go through the up and downs during economic down term
The company’s valuation tells me two things –
- Is the stock currently over-valued?
- If I get in now, what price should I consider to exit
Recently, I dived into some financial details of NVIDIA and examined its financial health and did my own valuation of its stock intrinsic value.
| Ratio | 2024 | 2023 | 2022 | Comments | Rates |
| Current Ratio | 4 | 4 | 7 | Current assets/current liability, above 1 in general is good | Very Good |
| Long-term Debt coverage ratio | 0.28 | 2.22 | 1.12 | Return/Long-term Debt; it indicates how long it will take the company to pay off its debt | Super Good |
| Short-term to Long-term Debt ratio | 15% | 13% | 0 | Short-term Debt/Long-term Debt; this ratio indicates how much the company is leveraging its long-term debt | Very Good |
| Return on Equity | 55% | 13% | 36% | Return/Adjusted Total Equity (add back treasury stock and cash dividend); it indicates how well the company manages its capital | Super Good |
| CapitalExp in Net Income | 4% | 42% | 10% | CapEx/Return; it indicates whether the company is capital intensive business or not | Super Good |
| %Change in Retained Earning | 32% | 84% | n/a | YOY% change in Adjusted Retained Earning (add back treasury stock and cash dividend) | Very Good |
| Gross Margin | 73% | 57% | 65% | Gross Profit/Revenue; It indicates it has pricing power | Super Good |
| Income from Operation % Sales | 54% | 16% | 37% | Income from Operation/Revenue | Very Good |
The above ratios showed great financial strength of Nvidia. It’s gross margin shows that it no doubts enjoys competitive advantage and has pricing power in the market that it competes. Its Return on Assets and Equity show that the management has done a great job managing its assets and capital to generate high returns to its shareholders. Its current ratio and long-term debt ratio show it has no liquidity issue what so ever, so it should not have problems during economic down terms. While the company enjoys its competitive advantages it is not a capital intensive business, so only 4% of its return got invested in plant/equipment in fiscal year 2024.
I think NVIDIA has everything that an investor wanted for a company. I gave it a solid 4-star company for investment. And, why not 5-star? I still wanted to validate its growth that people are hoping to see from NVIDIA as the power engine for AI.
Now the question comes in – is NVIDIA a good price to enter now or is it already over-priced in terms of its stock price? Based on my valuation (updated with its 10k release on 21st Feb., 2024), its stock price should be around $740-$1000, with stretch up to $1,200/share. This valuation is an average of P/E of 30 and 40, and 20-year CAGR (compounded annual growth rate) of 10% and 12%.
Disclaimer: Please note that I am not a financial advisor nor a lawyer. What I published in this article is purely based on my understand of finance and economics. It is for my personal hobby and entertainment purpose only. Please do not take it as a financial or investment advice. Please do your own research before making any financial or investment decision.