Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) have been on a volatile ride this month. AMD stock came into May hot, up 20%. Shares subsequently lost 24% after AMD missed revenue estimates and reported in-line earnings results.
Those losses were seemingly in the rearview mirror when, in mid-May, rumors of a licensing deal between AMD and Intel Corporation (NASDAQ:INTC) materialized. No comment from the company and denial from Intel caused those gains to fade though.
Moving Forward with Advanced Micro Devices
Shares are still down about 19% for the month of May. Despite the decline, Advanced Micro Devices is still up a whopping 184% over the past 12 months. Investors now need to figure out if it’s time to bail on AMD stock or get in on the action.
A big part of AMD’s story is execution. Basically, can management deliver?
Over the past six quarters, AMD has beaten EPS estimates four times and had in-line results the other two. In that same span, Advanced Micro Devices has beaten revenue estimates five times. Not to get too historical, but AMD didn’t have one beat in either category for the six quarters prior to that period.
So, to say management is improving would be an understatement. Analysts expect earnings of 7 cents per share in 2017. It would be a big deal if AMD were to become profitable this year, after four years of losses. Building on that momentum, analysts expect ~330% earnings growth in 2018 to 30 cents per share. This is where management’s execution comes into play.
Advanced Micro’s debt picture is another reason for optimism. In June, AMD was carrying $2.24 billion in debt. As of last quarter, that figure stood at just $1.41 billion, a reduction of 37%.
Finally, there’s valuation. As AMD works toward profitability, its earnings-based valuation is just okay. But, on a sales-basis, Advanced Micro Devices isn’t too bad. In fact, trading at 2.33x trailing sales is lower than both Intel and Nvidia Corporation (NASDAQ:NVDA). On a forward sales basis, AMD is also cheaper.
Trading AMD Stock
AMD gives bullish traders a good opening — albeit, a slight one. Support currently sits at the 200-day moving average, around $10.10. Below that, the stock is pretty iffy.
That’s good for bulls and bears alike though. Bulls can use this level, or one close to it, as their stop-loss. AMD stock should rally should that level hold, although it could have trouble clearing $12.50. Previously serving as support, this level will now likely act as resistance and give AMD stock limited upside.
Make no mistake about it, AMD suffered some big damage when it fell on earnings. But, a run back to $12.50 would represent a 15%-20% return, depending on where investors buy the stock. The Intel-rumor rally gave hope to bullish momentum returning. But, its negative reaction could cause the MACD to turn bearish once more (purple circle).
That’s what gives bears some hope. Should the MACD turn bearish — the black line falling below the red line — and the $10 level give way as support, bears will be in control. In that case, there’s no real way to know how much downside could exist.
But, one thing would be certain: Bulls would be in trouble. At least in the short-term, then, being long AMD would be painful. In the current case of Advanced Micro Devices, the advantage goes to bulls, for now. But, that will change if AMD stock falls below $10.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.
