The Cure For What's "Killing" Jim Cramer On NVIDIA Stock
|Jim, don't get down, we love you!|
Jim's Pain, Jim's Cure
Jim Cramer said last week that NVIDIA (NVDA) is "killing me" because he missed buying the stock.
He went on to say, "I have to find a way to get into NVIDIA."
Jim, may we be so bold to say we have your way in; you have to do the math and you'll get there.
Let's Do The Math On NVIDIA Stock Together
We did the math where NVIDIA's earnings can go in 2018 and based on that we'd have no problem getting into NVIDIA stock. Jim, let's do the math because that's your "way to get into NVIDIA."
You know way better than us, but it's not about buying stocks that are up but rather figuring out where they can go.
For that we did the work to see where earnings can go for next year and attached an average PE to it.
In the wee morning hours before NVIDIA would report after the close that same day May 9th, 2017 we put out a $200 stock price target. NVIDIA stock opened that day at $103 so we had a double ahead of us then. That night and the next day NVIDIA launched to close at $121.29.
We're ok with that. No taking profits here.
Just recently on July 4th after speaking with the company we upped our NVIDIA stock price target to $300. (What's another $100 between friends.)
Elazar you're nuts, $300, too aggressive!?
Not really nuts. We get there pretty easy, let's do the math.
If you look at our earnings model we actually have earnings slowing down in the coming quarters even though earnings growth has been speeding up the last few quarters. We think, if anything we're probably conservative.
So last quarter earnings grew 84%. And just now many of their hyperscale customers like Facebook (FB) and Google (GOOG) are going from test-mode to roll-out-mode. Their largest customers are rolling out NVIDIA system-wide. What's that going to do for NVIDIA's earnings numbers? It's not going to hurt, that's for sure.
Nonetheless we have earnings growth slowing from last Quarter's 84% to Q2 63%, Q3 55%, Q4 46% and next year 45%.
Nothing crazy right? They own AI and their largest customers are just "turning on." We're not being aggressive.
Elazar you're nuts, too conservative!?!
Those growth rates give us $7.00 in earnings per share for next year. Markets discount 9-12 months so why not start using 2018 earnings estimates?
They've been running an average 40 PE (Price-to-Earnings) the last two years. 40X$7.00=? $280. We rounded up for good measure. $300 target.
Jim, you have no problem getting in any time you want. You have our stamp of approval, not that you need it of course (We give you all our honor!) Still, you almost have a double from here. Not bad right?
Jim, One Beef Though: You Need To Update That "N" In FANG, What's Up?
I know you came up with the FANG thing a while ago. When you selected the acronym FANG, instead of NVIDIA you picked Netflix (NFLX). We're ok with that but video is going to get very competitive. Facebook (FB), Amazon (AMZN), Google (GOOG) are all gunning for video share. Add to that the stock is trading at like 80X next year's numbers.
(On Netflix, for what it's worth, we only have something like $.18 upside potential for quarterly results to be reported Monday night: see here. So don't change the "N" until after Netflix reports. Then after they report you swap out "N"etflix and put the "N" in "N"VIDIA, and you have to capitalize NVIDIA, company policy.)
We officially submit our request that you update the "N" in FANG, if that's allowed at all? (We're not sure if you have to check with legal on that or you need to go back and change all those reports or what's involved with taking on a new "N.")
Wrap It Up Elazar, I Have To Check My Facebook!
We love NVIDIA. Jim, you have nothing to worry about (please read all disclosures at bottom of site). 100% upside. Don't look back. Look forward.
Sent With Love,
Elazar, Happy Investing.