Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) have been on a tear. While AMD stock is up 17.6% in 2017, it’s higher by more than 250% over the past year. Talk about impressive. But investors really want to know if the AMD stock rally can continue.
Advanced Micro Devices is a tough one. Investors feel that because shares traded below $2.50 just 16 months ago, that they’ve missed the train.
Admittedly, given its more than five-fold return, the easy money is gone. But that doesn’t mean AMD stock can’t go from $13 to $16 or even higher. Or at least back to its 52-week high of $15.55 — a return of nearly 20%.
Of course, it’s far easier to buy a stock when we can assess its value. That’s harder with Advanced Micro Devices though because the company has made so many changes.
Advanced Micro Devices: The Fundamentals
AMD stock is far more attractive than it was a year ago. At year-end 2015, AMD closed with $785 million in cash and $2 billion in debt. By year-end 2016, its cash balanced climbed 61% to $1.26 billion, and its debt fell 28.5% to $1.43 billion.
Obviously these improvements have been given a thumbs up by Wall Street. The fact that Advanced Micro Devices will be barely profitable in 2017 is unattractive. However, it trades at 46 times 2018 estimates, which call for 29 cents in earnings per share. These estimates could be too low, though.
Consider that AMD missed or reported in-line earnings-per-share results in seven straight quarters. In that span, Advanced Micro only had one revenue beat. Since then though, the company has beaten EPS and revenue estimates for four straight quarters. Average estimates call for 29 cents in EPS for 2018. While the Street-high estimate of 79 cents per share is likely too high, 29 cents could prove to be too low.
From a valuation standpoint, it’s hard to find AMD stock attractive. The hope is that the company — like Nvidia Corporation (NASDAQ:NVDA) — remains in a strong position in its end markets and continues to improve. For investors, long-term value could be present even if the ride is volatile.
Advanced Micro Devices: The Technicals
The charts are not the most bullish, but one could expect some exhaustion after rallying 250% in a year. On the chart, AMD has a declining RSI (top orange line) and waning momentum on the MACD (bottom orange oval).
However, its trend line (in purple) is hard to miss. After serving as resistance in late-2016, it has now become support. The problem is momentum has been slowing over the last few months.
AMD stock is churning between $13 and $15 and that trend line can go two ways: continue as support or turn to resistance. For now, we must assume it will hold as support until proven otherwise.
There should also be decent support in the $12.40 to $12.50 area, as indicated by the black…