Meh. Sometimes that just means analysts wanted even better news. I would never take a stock's movement on quarterly report day to mean much by itself. The fact that they're making money is fantastic. A company with a positive P/E ratio. Also, whether or not it was the best use of the cash is debatable, paying down a big chunk of debt is also encouraging. I like it.
The problem is investors and unreasonable and pumped their stock too high. Its P/E is more than 260! Compare that to Apple (26) or INTC (14) or NVDA (66), all of which have much lower P/E. The assumption is AMD is going to have explosive growth, and if they don't deliver the stock drops.
That's really not fair to the ppl that make great products and try to succeed.
P/E isn't a useful measure when your 'E' is very small. After all, the P/E when your earnings are 0 are infinite.
Some people use forward P/E, which for AMD is much more reasonable.
It's not at all unfair to the employees. They've all benefited hugely from the run-up that's already occurred. Stock options from 5 years ago are worth a fortune today; there are probably quite a few AMD millionaires minted in the last year.
A very wise man said that in the short run, the stock market is a popularity contest. In the long run it's a scale.
You do realise even if they had double the Net Income, their current P/E for this year would still be 130? Even without paying down the debt they are no anywhere close to doubling of Net income this year.
Basically on a market median of P/E 25, the market right now is expecting 10x growth from AMD in the very near future. And they are NO where near that number.
The article clearly says that AMD is focused on paying down debt. In the last quarter alone, they paid off $524m in debt - 100% of that isn't "off the top" of net income, since they'd presumably have had to pay interest and some principal on it - but it's not too far off. If AMD had the same quarter next year (with debt at/near 0), they'd have had 2.5x net income and a ~100 P/E ratio - still high, but arguably in the same range as NVIDIA (~66), while AMD arguably has better growth prospects (since NVIDIA's growth largely comes from growing the size of the pie, while AMD can grow by getting a bigger slice AND growing the pie).
That alone doesn't explain the P/E ratio, but that's not the only number that matters for a stock (though for some investors, it might be the most important number).
Not necessarily a good thing. It is curious as to why they would pay a debt now when the interest rate is at historic low, when they can generate 45% of gross margin.
Unless they have something specific in mind to invest cash into that will grow revenue or margins faster than their debts accrue interest, it makes a lot of sense to pay off that debt while the going is good - regardless of interest rates.
P/E is a very relevant benchmark. If your E is very small (or zero), then you are not making (much) money, and that is a very relevant point for most investors. Always exceptions, but P/S or P/E(forward) really ignore a key point - is the company making any money? As to how many AMD employees got stock options 5 years ago, or how many employees in the tech industry are still with the company 5 years later is another, but interesting, discussion
We’ve updated our terms. By continuing to use the site and/or by logging into your account, you agree to the Site’s updated Terms of Use and Privacy Policy.
Facebook
Twitter
RSS
123 Comments
View All Comments
ahtoh - Tuesday, January 28, 2020 - link
stock is 5% down thocatavalon21 - Tuesday, January 28, 2020 - link
Meh. Sometimes that just means analysts wanted even better news. I would never take a stock's movement on quarterly report day to mean much by itself. The fact that they're making money is fantastic. A company with a positive P/E ratio. Also, whether or not it was the best use of the cash is debatable, paying down a big chunk of debt is also encouraging. I like it.ahtoh - Tuesday, January 28, 2020 - link
I see now the forecast was a bit lighter than expected, hence the fallwebdoctors - Tuesday, January 28, 2020 - link
The problem is investors and unreasonable and pumped their stock too high. Its P/E is more than 260! Compare that to Apple (26) or INTC (14) or NVDA (66), all of which have much lower P/E. The assumption is AMD is going to have explosive growth, and if they don't deliver the stock drops.That's really not fair to the ppl that make great products and try to succeed.
phr3dly - Tuesday, January 28, 2020 - link
P/E isn't a useful measure when your 'E' is very small. After all, the P/E when your earnings are 0 are infinite.Some people use forward P/E, which for AMD is much more reasonable.
It's not at all unfair to the employees. They've all benefited hugely from the run-up that's already occurred. Stock options from 5 years ago are worth a fortune today; there are probably quite a few AMD millionaires minted in the last year.
A very wise man said that in the short run, the stock market is a popularity contest. In the long run it's a scale.
ksec - Wednesday, January 29, 2020 - link
You do realise even if they had double the Net Income, their current P/E for this year would still be 130? Even without paying down the debt they are no anywhere close to doubling of Net income this year.Basically on a market median of P/E 25, the market right now is expecting 10x growth from AMD in the very near future. And they are NO where near that number.
And Intel is trading at P/E 14 right now.
sing_electric - Thursday, January 30, 2020 - link
The article clearly says that AMD is focused on paying down debt. In the last quarter alone, they paid off $524m in debt - 100% of that isn't "off the top" of net income, since they'd presumably have had to pay interest and some principal on it - but it's not too far off. If AMD had the same quarter next year (with debt at/near 0), they'd have had 2.5x net income and a ~100 P/E ratio - still high, but arguably in the same range as NVIDIA (~66), while AMD arguably has better growth prospects (since NVIDIA's growth largely comes from growing the size of the pie, while AMD can grow by getting a bigger slice AND growing the pie).That alone doesn't explain the P/E ratio, but that's not the only number that matters for a stock (though for some investors, it might be the most important number).
lopri - Saturday, February 1, 2020 - link
Not necessarily a good thing. It is curious as to why they would pay a debt now when the interest rate is at historic low, when they can generate 45% of gross margin.Spunjji - Monday, February 3, 2020 - link
Unless they have something specific in mind to invest cash into that will grow revenue or margins faster than their debts accrue interest, it makes a lot of sense to pay off that debt while the going is good - regardless of interest rates.catavalon21 - Wednesday, January 29, 2020 - link
P/E is a very relevant benchmark. If your E is very small (or zero), then you are not making (much) money, and that is a very relevant point for most investors. Always exceptions, but P/S or P/E(forward) really ignore a key point - is the company making any money? As to how many AMD employees got stock options 5 years ago, or how many employees in the tech industry are still with the company 5 years later is another, but interesting, discussion