Intel’s shares (NASDAQ: INTC) is unquestionably one of tech’s cheapest stocks right now. Having run up by almost 26% YTD, performing roughly together with the Nasdaq index.
According to economic news, the tech firm’s shares floundered against the Nasdaq almost through the year. But following reports of favourable earnings in October, the stock rose, giving it some leeway with the index.
However, despite the growth in stock value, intel’s share is still relatively cheap. In its annual report, the company projected a revenue of $2.93 per share this year. This means that with the stock’s November 10 closing price $45.58, investors are expected to pay 15.56 times more per share for the stock. That is outright cheap.
So, it is worth inquiring the reason behind Intel’ cheap stock…why?
Experts don’t see much growth in the future
In general, the higher a firm’s price-to-earnings ratio, the more confident investors are about its capacity to increase its profit in future. To understand how Intel gets the price-to-earnings ratio that it does, it is essential to study analysts’ forecasts about the company’s earnings per share in the next two years.
Analysts envisage that in 2018, Intel’s current earnings per share will rise to just $3 per share (up about 2.4 percent from Intel’s projection for 2017). There are also growth expectations of $3.19 in 2019 (up 6.33 percent from the 2018 projected figures).
Growth in revenue is also expected to be quite dismal as well; the average growth estimates in revenue for 2018 and 2019 are 2.9 percent and 3.22 percent respectively.
Back in February this year, at Intel’s Analyst Day, the company announced that it expected a “low single-digit” revenue growth in the next 3 years, with its operating incoming outperforming revenue growth and earnings per share (EPS) growth outperforming income growth.
With recent economic news, it is plain to see that the analyst’s estimate is quite consistent with Intel’s own expectations.
Due to the low expectations of growth in earnings by analysts- and automatically, investors- the amount investors will be willing to spend for each dollar of Intel’s share is naturally going to be low.
Can Intel perform better than market expectations?
It is going to be difficult to predict earnings growth because there are many factors beyond Intel’s control. For instance, the company significantly increased its financial projections for 2017 because it noticed more than expected growths for its primary computer chip business.
Behind Intel’s revenue growth forecasts are two major assumptions:
- That its personal computer chip business will fall at the rate of a single-digit percentage
- The company’s “growth” businesses get a “double-digit” revenue aggregate growth
Things may change as 2018 progresses. Until then, we shall have to wait and see.