AMD (NASDAQ:AMD) received an upgrade from Moody’s right before the weekend. This should help reduce the company’s debt costs. Later on, it could even help bolster AMD stock.
However, while AMD looks like a solid buy on the surface, issues have appeared that should create some doubts. Unless and until these issues resolve themselves, investors should hold out for a discount before buying.
The Moody’s Upgrade Helps
Moody’s took AMD’s debt rating to Ba2, up from the previous Ba3. In raising the rating for the AMD corporate family, Moody’s cited the company’s “design wins” and gains in market share as reasons for the improved performance outlook. AMD stock rose by almost 1.6% to $30.48 per share following the news.
I cannot argue with Moody’s rationale on the improved debt rating. Long known as the lower-cost, less-regarded semi manufacturer, analysts should now regard AMD as a full-fledged player in the semi industry. However, the question on the minds of traders is whether that will improve the performance of the stock.
On the surface, I see few reasons not to buy AMD. The forward price-to-earnings (PE) ratio of just under 29 is not cheap. However, projected earnings increases of 37% this year and 68.3% in fiscal 2020 make the slightly elevated PE ratio worthwhile.
Heed AMD’s range
However, markets often run up against stubborn price limits, and this has happened to Advanced Micro Devices stock. As I have stated in previous articles, the $34 price ceiling continues to plague AMD. This limit has left it range-bound and the current price of just over $30 per share places the equity in the middle of the range first established in May.
Will this range break eventually? In all likelihood, yes. Lisa Su continues to do an outstanding job in taking market leads over Intel (NASDAQ:INTC) and keeping it competitive on the graphics side against Nvidia (NASDAQ:NVDA). That will bolster profit growth and eventually push AMD stock through the price ceiling.
AMD Stock Is More Than Just Rangebound
However, the baffling aspects of AMD stock go well beyond a stubborn price ceiling. Our own Will Ashworth found another issue, namely the lack of insider buying.
Over the last year, not a single insider has purchased any Advanced Micro Devices stock. Moreover, insiders sold over 39 million AMD shares during the previous 12 months. That comes in far ahead of the roughly 2.27 million shares sold by Intel insiders and the 491,317 shares of Nvidia sold.
InvestorPlace feature writer James Brumley believes that AMD will more than likely move with the market. Much like AMD, the overall market seems to trade in a range as well. The S&P 500 continues to flirt with record highs despite a trade war and a lengthy economic expansion.
Brumley also made a point in a previous article about the 7nm Rome processor not living up to the performance expectation. Like Boeing (NYSE:BA) and the 737 MAX, AMD may have caused performance issues by rushing its 7nm processor to market.
Many reports have surfaced about Rome not performing as advertised. While I do not think this stops the AMD recovery story, it may make some investors wary of AMD for now.
The Bottom Line on AMD Stock
AMD is not as great a buy as it may appear. When comparing both the Moody’s upgrade and the forward PE ratio to the expected profit growth rate, Advanced Micro Devices stock looks like a definite buy on the surface.
However, it seems concerning that insiders have not bought into the story. Moreover, doubts about the performance of 7nm Rome could place further pressure on the stock. As a result, traders have seen the same thing happen over the last year—AMD stock reaches the $34 per share range and then sells off.
Furthermore, it has remained below the 50-day moving average since August 13th. Unless it breaks out of the current range, investors should only consider buying near the $26 per share level.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.