Interestingly enough, AMD always seems to catch a bid right before an economic meltdown. This company is extremely unimpressive, especially when compared to its peers. For this analysis, I looked at AMD against its comparable companies of NVDA, TXN, INTC, and TSM.
Looking at AMD itself, this is another example of a false "growth" story valuation. With negative earnings, it is currently trading around the 70th percentile of P/E (price to earnings) and P/S (price to sales) multiples. At face value, this itself isn't very striking. The problem arises when assessing AMD's D/E (debt to equity) ratio against its competitors. Median D/E of comparable semi-conductor companies is roughly 0.5, and AMD completely blows through the top end of the range with 1.5+.
Leverage itself is not necessarily a headwind, so long as the business model has matured, and the company has proper coverage to service the debt. The problem with AMD is that their cash flow story has been awful. Looking at the trailing five quarters, AMD has paid roughly $25M AT (after-tax) in interest expense and their working capital flows make it difficult for the company to realize revenues on time. As a result of their inability to manage a proper business model and capital structure, AMD has been burning cash since the dawn of mankind, and I am not buying the "growth" story that they are currently receiving.
Another red flag from their last 10Q was their sale of stock. In the past quarter, they sold $35M net in stock, which was more than their entire sale of stock in 2017. In summary, buying this stock is similar to cutting your dollars in half, throwing away half, and burning the remaining dollars. I have a medium term price target of $12.80 per share on AMD.
Looking at AMD itself, this is another example of a false "growth" story valuation. With negative earnings, it is currently trading around the 70th percentile of P/E (price to earnings) and P/S (price to sales) multiples. At face value, this itself isn't very striking. The problem arises when assessing AMD's D/E (debt to equity) ratio against its competitors. Median D/E of comparable semi-conductor companies is roughly 0.5, and AMD completely blows through the top end of the range with 1.5+.
Leverage itself is not necessarily a headwind, so long as the business model has matured, and the company has proper coverage to service the debt. The problem with AMD is that their cash flow story has been awful. Looking at the trailing five quarters, AMD has paid roughly $25M AT (after-tax) in interest expense and their working capital flows make it difficult for the company to realize revenues on time. As a result of their inability to manage a proper business model and capital structure, AMD has been burning cash since the dawn of mankind, and I am not buying the "growth" story that they are currently receiving.
Another red flag from their last 10Q was their sale of stock. In the past quarter, they sold $35M net in stock, which was more than their entire sale of stock in 2017. In summary, buying this stock is similar to cutting your dollars in half, throwing away half, and burning the remaining dollars. I have a medium term price target of $12.80 per share on AMD.