NVIDIA Corporation (NVDA) Return Reaches 0.68501 as Quant Comes into Focus

NVIDIA Corporation (NVDA) Return Reaches 0.68501 as Quant Comes into Focus




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Taking a deep dive into the Return on Invested Capital (aka ROIC) for NVIDIA Corporation (NVDA), we see that the number stands at 0.68501. The Return on Invested Capital is a ratio that determines whether a company is profitable or not. It tells investors how well a company is turning their capital into profits. The ROIC is calculated by dividing the net operating profit (or EBIT) by the employed capital. The employed capital is calculated by subrating current liabilities from total assets. Similarly, the Return on Invested Capital Quality ratio is a tool in evaluating the quality of a company’s ROIC over the course of five years. The ROIC 5 year average is calculated using the five year average EBIT, five year average (net working capital and net fixed assets). The ROIC 5 year average of NVIDIA Corporation (NVDA) is 0.369135.

Some investors will scour the markets looking for cheap, quality stocks. These stocks can be attractive for investors looking to find a bargain that could turn into a big winner. Investors may be cautious when searching for these types of stocks. Often times, a stock will see a huge jump and then everyone will hop on the bandwagon to buy without checking into the fundamentals. Sometimes this strategy may work out, but in many cases, the stock has already made the run and become too expensive to add to the portfolio. Conducting diligent research and constantly adding to the individual’s overall market education level may help the investor sift through the sea of stocks and find those names that are really worth getting into.

Value Composite Three (VC3) is another adaptation of O’Shaughnessy’s value composite but here he combines the factors used in VC1 with buyback yield. This factor is interesting for investors who’re looking for stocks with the best value characteristics, but are indifferent to whether these companies pay a dividend.

VC3 is the combination of the following factors:

Price-to-Book
Price-to-Earnings
Price-to-Sales
EBITDA/EV
Price-to-Cash flow
Buyback Yield

As with the VC1 and VC2, companies are put into groups from 1 to 100 for each ratio and the individual scores are summed up. This total score is then put into groups again from 1 to 100. 1 is cheap, 100 is expensive. NVIDIA Corporation (NVDA) has a VC3 of 53.

The scorecard also displays variants of the VC3 where the score is calculated for the selected company compared to peer companies in the same industry, industry group or sector.

Watching some historical volatility numbers on shares of NVIDIA Corporation (NVDA), we can see that the 12 month volatility is presently 49.1199. The 6 month volatility is 60.6936, and the 3 month is spotted at 32.6711. Following volatility data can help measure how much the stock price has fluctuated over the specified time period. Although past volatility action may help project future stock volatility, it may also be vastly different when taking into account other factors that may be driving price action during the measured time period.

NCAV-to-Market

Benjamin Graham, professor and founder of value investing principles, was one of the first to consistently screen the market looking for bargain companies based on value factors. He didn’t have databases such as ValueSignals at his disposal, but used people like his apprentice Warren Buffet to fill out stock sheets with the most important data.

Graham was always on the watch for firms that were so discounted, that if the company went into liquidation, the proceeds of the assets would still return a profit.

The ratio he used to identify these companies was Net Current Asset Value or NCAV. This ratio is much more stringent compared to book value (total assets – total liabilities) and is calculated as follows:

NCAV = Current Assets – Total Liabilities
Current Assets = Cash & ST Investments + Inventories + Accounts Receivable
Graham was only happy if he could buy the company at 2/3 of the NCAV. That’s the sort of margin of safety he was looking for.



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This strategy was very successful during the years after Graham published it in his book ‘Security analysis’ in 1934 and also in more recent studies it has proven to provide superior results. A study done by the State University of New York to prove the effectiveness of this strategy showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4%, by purchasing stocks that fulfilled Graham’s requirement and holding them for one year. Nowadays it’s very difficult to find companies that meet Graham’s criteria.

We calculate NCAV to Market as follows:

NCAV-to-Market Ratio = NCAV divided by Market Cap

NVIDIA Corporation (NVDA) has an NCAV to Market value of 0.05933.

Price to Sales

In the original edition of ‘What works on Wall Street’, O’Shaughnessy wrote that the single-best value factor was a company’s price-to-sales ratio (P/S). In his latest edition the P/S continues to perform well, but it was unseated by the value composites and EBITDA/EV due to 2 reasons: (1) A broader scope of analysis by using deciles and (2) two very bad years for P/S, e.g. 2007 and 2008.

A stock’s P/S is similar to its P/E ratio, but it measures the price of the company against its annual sales instead of earnings.

It’s calculated as follows:

Price-to-Sales Ratio = Market Cap/Net Sales or Revenues

NVIDIA Corporation (NVDA) has a price to sales ratio of 9.504997.

Price to Earnings

This is undoubtedly the most popular value factor and for many investors the one true faith. It compares the price you pay per share compared to the earnings during the last 12 months. It’s calculated as follows:

Price-to-Earnings Ratio = Share Price/Diluted EPS excluding extra items

The P/E ratio for NVIDIA Corporation (NVDA) is 27.603318.

Gross Profitability

NVIDIA Corporation (NVDA) has Gross Profitability of 0.539497

Robert Novy-Marx, a professor at the university of Rochester, discovered that gross profitability – a quality factor – has as much power predicting stock returns as traditional value metrics. He found that while other quality measures had some predictive power, especially on small caps and in conjunction with value measures, gross profitability generates significant excess returns as a stand alone strategy, especially on large cap stocks.

Gross Profitability is calculated as follows:

Gross Profitability = (Net Sales or Revenues−Cost of Goods Sold)/Total Assets

Novy-Marx’s key insight was that you don’t need to go further down the income statement as these numbers may get manipulated with accounting tricks. To identify really profitable firms, one should look at the top line, not the bottom line.

In one of his papers, Novy-Marx compares gross profitability to the other most famous strategies such as Greenblatt magic formula, Piortoski F-Score, etc.

When it comes to investing in the equity market, discipline can play a major role in achieving ones goals. A few bad moves can send the investor’s confidence spiraling. Acting purely on emotion can lead to impulsive decisions that may cause the losses to pile up. Creating a solid plan and following through with the plan can help investors stay on track and focus on the proper details. Markets are constantly going up and down and the investing ride can sometimes be a bumpy one. Being able to see the big picture and focus on the important data can help keep the investor tuned in to the right channel. Investors who expect to jump into the market and immediately start raking in the profits may find out fairly quickly that trading without a plan can be a recipe for defeat.







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