Lets ignore the news and momentum moves and try to understand something about companies and valuations.
ATI is a money losing business most banked on dying a couple of years ago. For high risk companies like this it is good to think in terms of probabilities.
If the companies dies it has little debt and probably enough IP to be worth 3-4 billion. If the company recovers, what would it look like?
Looking at its major competitor, NVDA, Nvidia has around USD7 billion in revenues and about a 27% EBITDA margin, and is trading around 26x EBITDA.
If we want to look at what AMD may look like on a recovered basis, it would probably look like, lets say revenue grows 50% from USD4.3 bn to USD6.4 billion at some point and lets say EBITDA margins recovers to 25% and it trades at 20x EBITDA, it would imply a market cap of around USD32 billion.
Looking at recent pricing action, the shares were trading around 14.5~ which implied around a 14 billion market cap in March, which meant investors were pricing a 40-45% chance of recovery. The recent pricing action suggest investors are losing some faith, with that implied probability now falling to 30%.
As for what AMD should be valued at, plug in your own probabilities and determine your own valuation. I have no special insights greater than the market.
Submitted May 02, 2017 at 11:23AM by vegaseller http://ift.tt/2p50WVi
