NVDA stock has seen a sizeable correction following its latest earnings release. Here's why NVIDIA stock may be worth considering right now.
Santa Clara, California-based NVIDIA Corporation (NASDAQ:NVDA) delivered strong Q4 results on the 9th of February, beating analyst estimates of both top and bottom line performance. While NVIDIA's revenue growth was impressive, its earnings growth was simply outstanding. Even in terms of its guidance for the coming quarter, NVIDIA's projections met analysts' estimates. Yet, surprisingly, the stock didn't quite reflect the company's solid performance. Shares of NVIDIA are now down by close to 10% from the highs they made on the 9th, before the company's earnings were announced. Given NVIDIA's Q4 performance, it's exceedingly hard to justify the post earnings correction. However, for those who have been on the lookout for an opportunity to buy into the stock, a suitable time to accumulate the shares might be round the corner.
This could be a buying opportunity to enter NVIDIA stock.
NVDA stock broke its losing streak for the first time on Tuesday, rising marginally to close the day at nearly $109 a share. While the stock could fall further in the near term, it looks like a pretty good investment option in the long term. In fact it's not very easy to understand why the stock has fallen in the first place. NVIDIA delivered strong top line growth, and exceptional earnings growth in its latest quarter. NVIDIA's revenue grew by 55% YoY, and the company's earnings grew by an eye popping 117% for the quarter. Those aren't the kind of numbers you come across on a daily basis. So why did Wall Street yawn at those numbers? While some analysts said that the results weren't good enough to be consider "blowout" results, others pinned the blame on NVIDIA's Q1 guidance. And if you look closely, neither of these explanations justify the correction.
Not a "blowout" quarter?
For starters, there's obviously no clear definition of a "blowout" quarter. NVIDIA's non-GAAP EPS of $1.13 actually beat analyst estimates by 30 cents, translating to a 36% beat. If that's not a blowout quarter, then we're not quite sure what is. Growth in NVIDIA's auto segment slowed sequentially, but that's understandable, given that the segment is still an evolving business. And there's no dispute over the fact that NVIDIA is the sole big player in this segment. Besides, the company's revenue figure surpassed estimates anyway, so it shouldn't matter all that much. Make no mistake, expectations were really high after NVIDIA's massive rally in 2016, more so following the announcements at CES 2017. And NVIDIA actually managed to beat those estimates.
Did NVIDIA's guidance disappoint?
Coming to the guidance, nearly every source agrees that NVIDIA's Q1 guidance was in line with analysts' estimates, attributing the fury to the fact that the company's guidance wasn't well ahead of estimates. This sort of a rationale borders on being whimsical. If analyst were disappointed by NVIDIA's guidance, which actually met their estimates, it implies that their expectations were probably higher than the ones they published. And if that's the case, these estimates implicitly don't hold much significance. Alternatively, meeting expectations should have been good enough. Besides, as a fellow author highlighted in his post earnings coverage, NVIDIA has beaten the higher end of its guidance consistently, which means that in all likelihood, it could do so again, taking its numbers past analysts' estimates. So, clearly, guidance is not the problem. Then what is?
In cases like these, where a stock has delivered stellar returns over an extended period of time, pretty much any excuse can trigger a correction. The reason could simply be profit booking. Investors might not really want to read too much into the post earnings reaction. It's also worth noting that the current consensus price target for NVDA stock is still higher than its current price, at ~$116 a share. In fact, some analysts have even assigned the stock with a $130 price target following its latest earnings announcement.
Those who have been looking for an opportunity to enter the stock would do well to wait for the stock to settle down and use this opportunity to buy NVIDIA shares. Based on technical indicators like the RSI and Bollinger Bands, NVDA stock has retreated from overbought territory. And a further decline from here could make the stock attractive for long term investors. Looking for great tech stocks? Check out Amigobulls' top stock picks, which have beaten the NASDAQ by over 120%.