In looking for the most overvalued stocks, we considered metrics like price-to-sales, rapid stock price appreciation not supported by comparable financial growth, pricing and revenue pressure from competition, and future predictions of success like forward P/E. All of the stocks that we examined are large caps, and we have made an attempt to look across as many industries as possible.
Nvidia. (NVDA) is at the high end of its 52-week range, trading at just above $38, up from a 12-month low of $16.42.The stock has not been this high since early 2002. According to Yahoo!Finance, the company has a price-to-sales ratio of 4.55. By contrast, AMD’s is 1.77. The company is in the midst of an options backdating investigation, and is late in filing financials. In the last reported quarter, which was October 29, the company reported revenue of $821 million, up 41% from the same quarter a year ago.
Nvidia will rely on Sony’s Playstation 3 for much of its future revenue. Given Sony’s problems with the product launch, there could be some softness there.Nvidia’s primary rival ATI, has been bought by the much larger AMD, which will give ATI resources it has not had in the past. Last year, ATI was able to take the Xbox account from Nvidia.There was some speculation that Intel would counter with a bid for Nvidia, but that has not happened.
A large amount of Nvidia’s revenue comes from the PC market, and, given the problems of flattening sales at companies like Dell and Gateway, this is not good news.The company has come out with a new graphics chip but the market for it is limited.
Nvidia has made an acqusition to attempt to move beyond the PC customer base.It describes its planned purchase of PortalPlayer as driving the next digital revolution.
But, PortalPlayer was on its last legs when Nvidia stepped in, its stock having fallen from over $33 to $13 in the last year after losing the Apple iPod business.
Longbow Research and Stifel Nicolas both downgraded the stock recently
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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