Is NVDA Stock an URGENT BUY After the 4:1 Stock Split? (NVIDIA Stock Valuation)

0:00 Nvidia stock which is listed under ticker symbol nvda has been on absolute fire in 2021 as this stock is actually up over 40 year-to-date and the momentum behind the bullish stampede for nvidia stock might continue into the second half of 2021 i say this in particular because nvda stock had a four for one stock split that took place today my name is blake and on this episode of nine to five investing i'm going to talk about how this four for one stock split

0:31 In nvda stock could be an exploitable opportunity in the stock market right now and then i'm gonna go over the valuation of nvidia and let you know whether or not i believe the valuation at the current prices is cheap or expensive the reason that i say this four for one nvidia stock split could be a good trading opportunity is because many investors particularly those that are new to the market like to see lower priced stocks although a stock split does absolutely nothing to change

1:00 The market capitalization or the evaluation of a company there is something that psychologically happens in a lot of investors heads where whenever they see a stock at a lower price even if there are four times as many shares it's just going to inherently be more attractive to them than a stock at a higher price just to be clear here all that is happening with this nvda stock split is nvidia is quadrupling their outstanding shares but then each share is going to be worth

1:28 1 4 of the price that the stock was trading at before the stock split happened so given the fact that there has been no actual change in the evaluation of nvidia as a result of the stock split why am i telling you that this could potentially be an exploitable opportunity in the stock market right now well i personally believe that the fact that nvidia stock is trading at 1 4 of what it was yesterday is actually going to attract a wider investor base

1:59 Than whenever the stock was trading for four times the price and this theory is not just pure speculation on my part i actually watched this very dynamic of a smaller stock price actually attracting a wider base of investors right after i made a video about the trade desk and its 10 for one stock split last month on the day of its stock split the trade desk actually opened up at 60 dollars per share over the next 10 trading days the trade desk actually surged to a high of 81.25

2:32 That is a stock price increase in excess of 33 in just two weeks following the stock split of the trade desk i have also seen this dynamic of bullish momentum coming from a stock split play out with other stocks i think that there are a lot of traders that wait on the sidelines for a stock split and they try to see if that stock split generates a lot of interest from the public and whenever they believe that there is going to be some bullish momentum

3:00 As a result of that stock split they go ahead and buy shares and try to trade it that way but please do not mistake what i am suggesting here i'm not saying that i believe it is almost guaranteed that nvidia stock is going to surge as a result of the stock split over the next couple of weeks in fact i wouldn't even be surprised if nvidia's stock actually ended up falling in the two weeks after the stock split because there are a lot of dynamics especially when you

3:29 Think about it from a broader perspective of the overall stock market there are a lot of dynamics at play here other than just a stock split but what i am saying is that i have seen bullish momentum occur from stock splits in the past and this could definitely play out with nvidia stock the same way especially considering how popular the stock actually is so i would recommend keeping nvda stock at the top of your watch list my suggestion to you would be to keep

3:57 Your eye out for any bullish momentum behind nvda stock over the next couple of weeks if the bullish momentum turns out to be there for nvda stock if it's strong consider making the entry point for a trade or a long term investment but please if you are trading don't go into any trade without a set plan for when you're willing to actually take a loss onset trade if you are investing in nvidia stock for the long term then of course you do not need to worry about the

4:27 Short-term price fluctuations i'm just talking about for the folks that are looking to trade nvda stock i remember whenever i used to trade a lot more the thing that i always struggled with honestly was just not knowing when to take a loss which speaking of long-term investing based on solid fundamentals let's now get into talking about the evaluation of nvidia stock as this discussion is much more important in my personal opinion than any discussion about short-term price

4:55 Movements based on a stock split one thing that is crucial to understand about the valuation of nvidia stock is that valuation is much more certain long-term whenever we're looking at the stock split all we're doing is looking at a pattern that has occurred many times in the stock market and anticipating the potential for that to repeat with nvidia stock but whenever you are analyzing valuation metrics you are looking at concrete figures of revenue

5:22 Net income and enterprise value and using this information to determine whether the stock is actually expensive or cheap based on peers historical data all that kind of good stuff i can personally sleep a lot better at night because it is more concrete and rational to make long-term investing decisions on valuation metrics rather than just short-term technical trading patterns now don't get me wrong i don't want to contradict myself here i do like using these short-term trading

5:52 Patterns as entry points for a long-term investment or of course if i am trying to do some sort of a swing trade but at the end of the day it's all about hands-down fundamentals first first i want to look at nvidia's valuation based on revenues or sales more specifically i'm going to do this by looking at the ratio of enterprise value to revenue and an aspect of nvidia's fundamentals that you should certainly keep in mind whenever you are analyzing these metrics related to

6:21 Revenue is that they are growing their revenues at a very impressive rate from 2017 to 2020 nvidia actually has a compound annual growth rate and their revenues of 19.2 percent which is impressive especially when you consider that they're starting back in 2017 in the billions of dollars already now it is one thing for a company that has millions or hundreds of millions of dollars of sales each year to have a revenue growth rate similar to nvidia's

6:51 It is a whole never ball game whenever you have a company that has the sustained revenue growth over a long period of time whenever they're dealing with billions of dollars anyway if you calculate nvidia's enterprise value to revenue ratio then you're going to get a value of 4.39 times now if you are a value investor like warren buffett for example then you might actually consider this enterprise value to sales ratio to be relatively high because an average

7:20 Fairly valued company at least in the conventional wisdom is going to have a ratio that is between one and two but here's the thing we are in a lofty stock market right now we're in a stock market where warren buffett really can't find any companies that are priced at a good valuation i mean i'm sure he can find some but it's definitely harder than it used to be for him not only that but nvidia's revenues are growing at a very high rate and investors are willing to pay

7:48 For that high growth in my personal view these two factors really do explain why nvda stock has a bit of a loft evaluation if you're looking at this enterprise value to revenue ratio so if we pull up a historical chart that shows the change in enterprise value to revenue ratio for nvidia stock over the last five years we will see that the average metric here is going to be 2.32 times so nvidia is certainly valued a bit loftier than it has been in

8:18 The recent past but then again i think that a lot of this is just because investors have too much cash as a result of the federal reserve printing so much freaking money in 2020 and in 2021 that they don't know what to do with all their cash and this is just pushing up the stock market in general it is also worth noting that nvidia a competitor to amd actually does have an enterprise value to revenue ratio of 6.84 times therefore nvidia stock is actually

8:48 Cheaper than amd stock when you're basing your valuation analysis on the revenues now i want to take a look at nvidia's valuation based on net income to accomplish this i'm going to take a look at nvidia's forward price to normalized earnings ratio another attractive element of nvidia's fundamentals is that they actually did grow their net income at an even higher rate than they did grow their revenue over the last five years nvidia has a compound annual growth rate

9:17 For their net income of 21 over the last five years if we calculate the forward price to normalize earnings ratio then we're going to get a ratio of 46.57 times from a historical perspective this is actually rather expensive for nvda stock if we pull up a chart that shows the history of this ratio over the last five years we will see that the average price to normalize earnings ratio is going to be 36.5 times if we throw amd on the same chart with nvidia then we

9:50 Can see that amd actually has a price to normalize earnings ratio of about 40. so if you're basing your valuation on revenues then nvidia is going to be the better deal compared to amd right now but if you are basing your evaluation on net income amd is actually looking cheaper than nvidia in that case at the end of the day i think that finding attractive valuations for any quality company it's going to be very hard these days just because the market is a little bit inflated from the federal reserve printing trillions upon trillions of dollars ever

10:24 Since the global health crisis hit now i don't necessarily think that nvidia stock is overvalued at this point but the evaluation metrics that we went over earlier in this video definitely tell us that nvda stock is not undervalued either at the end of the day most investors are not going to ignore the strong revenue and net income growth rates that nvidia has been putting up year after year after year when determining what price they would be comfortable with for purchasing a

10:53 Share of nvidia stock so that's something to definitely keep in mind as well overall nvidia's valuation is a little bit on the higher side but this is exactly what i would expect from a quality growth company in this 2021 inflated stock market if i decided to build a position in nvda stock for the long term then i'd be looking to buy only a small portion of my ultimate desired position right now at these prices and i would look to add on any significant dips

11:23 If you would like to watch a video about an electric bus manufacturer that has deep ties to the biden administration then click the thumbnail on the right