Shares of Advanced Micro Devices (NASDAQ:AMD) haven’t done bad. But they certainly are not flourishing like some of its peers. By peers, I mean Nvidia (NASDAQ:NVDA), which made another new all-time high this week while AMD stock looks on.
However, don’t mistake the stock’s lackluster sideways trading action for a lack of reason to be involved in the name. This is a high-quality company with solid growth.
Furthermore, the company is managing to grow despite the headaches most companies are suffering from amid the novel coronavirus.
Let’s look at three reasons why AMD stock is one to consider on the long side.
Growth When Many Can’t Grow
As mentioned earlier, AMD is not getting caught up in the negative year-over-year growth cycles that many companies now find themselves in. Some, like the airlines or energy companies, will take years to recoup to 2019 levels of business.
Not AMD.
Analysts expect revenue to grow 25% this year to $8.41 billion, followed by 21% growth next year. On the earnings front, consensus estimates call for profit of $1.03 per share. If achieved, it will represent more than 60% year-over-year growth. For fiscal 2021, forecasts call for almost 50% earnings growth to $1.52 per share.
So not only does AMD have growth, but it has robust growth. And not only does it have robust growth, but it has robust growth at a time when many other companies are struggling for break-even growth rates this year.
AMD Stock Is a More Reasonable Investment
AMD CEO Lisa Su has done an incredible job managing this firm. She has helped drive the company’s market cap from less than $2 billion just a few years ago to about $62 billion.
While a healthy dose of growth has helped drive AMD from irrelevant to can’t be ignored, she and her team have also improved the financials.
Total assets almost doubled from 2016 through fiscal 2019, growing from $3.3 billion to $6 billion. Current assets increased from $2.5 billion to $4.6 billion. While current liabilities grew during this span as well, the ratio in which current assets outweigh current liabilities also crept higher. That means the company is not taking on added leverage.
In fact, AMD is decreasing its leverage. Long-term debt has fallen from $1.4 billion in 2016 to just $486 million at the end of 2019. That’s just what we like to see: assets up, with liabilities and debt down.
Further, cash flow has really started to shine. From 2016 through 2018, here are the free cash flow results: $13 million, $45 million and $129 million.
In 2019 that figure accelerated up to $276 million and over the trailing 12 months stands at $431 million.
This free cash flow growth alone is reason enough not to ignore AMD stock.
Trading AMD Stock
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It seems that people forget AMD stock doubled from its October lows to its February highs. A 100% gain in about four months is a massive move, particularly for a company of AMD’s size.
True, it’s not the size of Apple (NASDAQ:AAPL) or something similar, but going from a $30 billion market cap to a $60 billion market cap is no small feat – particularly when done inside of 20 weeks.
In that respect, AMD stock has done an excellent job consolidating those gains. On the downside, keep an eye on $49. This has been the bounce spot for the last two months. A close below this area could put the 200-day moving average in play.
On the upside, look for a move above the 20-day and 50-day moving averages. Above these marks puts downtrend resistance in play. Over that and the $58 to $59 resistance area is on the table.
From there, look to see if AMD stock can break out to new highs. If it can, it puts the 123.6% extension in play, up at $64.58.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AMD and NVDA.
