Nvidia (NVDA – Get Report) is having a terrific year thus far, up 54% compared with the S&P 500 (SPY – Get Report) which is up 25%. What about Nvidia’s crypto hangover? It’s nothing but a distant memory now.
Nvidia’s Q3 2020 results demonstrate that it is in great shape having firmly turned a corner on last year’s performance, with strong cash flows and a cheap valuation. Nvidia is a great bargain opportunity and here’s why:
Muted Market Reaction? No Problem!
Nvidia’s Q3 2020 beat the on the top-line and bottom-line of its consensus, yet investors underreacted with shares wavering after-hours on Thursday and flat on Friday in pre-market trading. Why? Arguably because investors wanted more in the way of positive surprises, given the strong performance Nvidia’s stock has had thus far during 2019.
But if this time last year investors were waking up with a massive sell-off, Nvidia today shows that this management team’s ability to execute is first class.
The All-Important Guidance
Nvida’s Q4 2020 guidance does not include Mellanox’s acquisition, which is expected to complete in early calendar 2020.
As the graph above highlights, Nvidia’s revenue growth rates are once again unstoppable. It clearly reminds investors that Nvidia has put its troubles in the rear-view mirror.
Furthermore, if the top-line prospects look good, the one standout item this quarter was its free cash flows which were a record high of $1.5 billion compared with just close to $340 million in the same period a year ago.
Having said that, digging through Nvidia’s cash flows statement, it shows that Nvidia is benefiting from its previously written-off inventory that is supporting this quarter’s strong cash flows.
During Nvidia’s earnings call, CEO Jensen Huang proclaimed that Nvidia’s ray tracing capabilities are unmatched with those in the industry, going as far as to call Nvidia’s RTX graphics card a “home run.”
One blemish on Nvidia’s Q3 2020 results was that its…