Graphics chip maker NVIDIA (NVDA), the most actively traded stock on the NYSE and Nasdaq today, dropped 30% after announcing much lower guidance for 2nd quarter revenue and a $150-$200 million charge for product malfunctions (NVDA Press Release).
They estimated revenue between $875-$950 million for the 2nd quarter versus Wall Street estimates for $1.1 billion.
The stock was absolutely crushed, down 30% on massive volume – 74 million of the firms 555 million outstanding shares, 13%, traded hands in today’s shortened session! (NVDA 1 Year Chart).
The stock is now trading at levels not seen since the Summer of 2006 and more than 50% below its 200 day moving average.
NVIDIA is tempting here on a valuation basis. They have $1.6 billion in cash and no debt. That means their enterprise value (Market Cap + Net Debt) is $5.8 billion. They earned $967 million over the last 4 quarters for a trailing multiple of 6.
Even if revenues and earnings come down from these levels, the shares could still be attractively priced. For instance, even if earnings get cut in half, we’re only talking about a 12 forward multiple. That strikes me as a pretty good “margin of safety”.
One worry is that a lot of NVIDIA holders are out of the office today and will sell when they return on Monday, pushing shares down even more. But potentially there will be more buyers Monday too. I like NVIDIA for a trade here.
Disclosure: Top Gun is long NVIDIA (NVDA) shares.