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2021-07-13

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Is Nvidia Stock A Buy Now Before Its Stock Splits?

Summary NVIDIA has announced a stock split, and here's what you need to know about it. Stock splits

Is Nvidia Stock A Buy Now Before Its Stock Splits?

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":142269660,"tweetId":"142269660","gmtCreate":1626153513950,"gmtModify":1633929574915,"author":{"id":3573347217115205,"authorId":3573347217115205,"authorIdStr":"3573347217115205","name":"TayYZ","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":0,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Buy</body></html>","htmlText":"<html><head></head><body>Buy</body></html>","text":"Buy","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/142269660","repostId":1142072504,"repostType":4,"repost":{"id":"1142072504","pubTimestamp":1626142838,"share":"https://www.laohu8.com/m/news/1142072504?lang=&edition=full","pubTime":"2021-07-13 10:20","market":"us","language":"en","title":"Is Nvidia Stock A Buy Now Before Its Stock Splits?","url":"https://stock-news.laohu8.com/highlight/detail?id=1142072504","media":"seekingalpha","summary":"Summary\n\nNVIDIA has announced a stock split, and here's what you need to know about it.\nStock splits","content":"Summary\n<ul>\n <li>NVIDIA has announced a stock split, and here's what you need to know about it.</li>\n <li>Stock splits can lead to irrational price movements in the near term, but in the long run, growth and valuation will be the important drivers for a stock's performance.</li>\n <li>NVIDIA experiences strong growth and is well-positioned to grow further, but its shares are historically expensive today.</li>\n</ul>\nArticle Thesis\nNVIDIA Corporation(NASDAQ:NVDA)announced a stock splitthat will go into effect on July 20. Other companies, such as Apple(NASDAQ:AAPL)and Tesla(NASDAQ:TSLA)have seen their shares do well following stock splits last year, but I still don't think it's a good idea to buy solely due to an announced stock split. NVIDIA's shares are expensive, but on the other hand, the company is growing fast and has a lot of room for growth in the coming years. For long-term oriented investors, NVIDIA could be a solid investment, although waiting for a correction to get a more favorable entry price could pay off.\n<img src=\"https://static.tigerbbs.com/0f30d3b4db0860b4fdf506081129744f\" tg-width=\"640\" tg-height=\"191\" referrerpolicy=\"no-referrer\">\nSource:StockRover\nWe see that NVIDIA is currently trading at a steep premium compared to many of its peers, while also offering a dividend yield that is well below the average. To some degree, the premium seems justified due to NVIDIA's strong growth outlook.\nNVIDIA Stock Price\nNVIDIA Corporation has been one of the best performers in recent years, as the company saw its share price explode upwards due to a combination of fast growth, crypto mining tailwinds, a PC gaming boom that is great for NVIDIA's GPU segment, and the market's admiration for growth stocks:\n<img src=\"https://static.tigerbbs.com/0ad45b1496adb2223717daa54a2e02f3\" tg-width=\"635\" tg-height=\"417\" referrerpolicy=\"no-referrer\">Data by YCharts\nOver the last ten years, NVIDIA saw its shares deliver an incredible 4,900% return, turning a $10,000 investment into $500,000. Even in 2021, which saw some growth stocks underperform, NVIDIA has done very well so far, as its shares rose by around 50% during the first half.\nAt $815 per share, NVIDIA is currently trading just a couple of percentage points below its all-time high. The current consensus price target by the analyst community is $750, thus shares do seem rather expensive. If the analyst community is right, then NVIDIA will not generate compelling returns over the next year. One could indeed argue that shares have run too far this year and that a phase of consolidation would make sense, as the company's business growth has to catch up to the massive 50% share price increase in H1 alone. Based on current EPS estimates for this year, shares trade for 51x forward earnings -- again, this seems rather expensive, which may indicate that right now may not be the best time to enter or expand a position.\nIs NVIDIA Stock Going To Split Soon?\nThe announced stock split will go into effect on July 20. On that day, NVIDIA's shares are split at a 4-1 rate, which will make the share count grow to ~2.5 billion on a fully diluted basis. Shares should then trade for a little above $200, all else equal, although it is of course possible that NVIDIA's shares rise or fall between the time of writing and July 20.\nIs It Better To Buy Before Or After A Stock Split?\nIn theory, a stock split does not change the value of the underlying company; it just leads to the company being divided into more individual shares. There are, however, some psychological factors at play that can lead to share price performance being influenced by stock splits. First, shares may appear cheaper at first sight for those that do not look at metrics such as the earnings multiple, which may incite buying. On top of that, some investors seem to erroneously believe that buying shares before a stock split will somehow get them a larger part of the company once the stock split happens, which is, of course, not true. Investors will end up owning more shares than they originally purchased pre-split, but those shares won't amount to a greater ownership of the company.\nStock splits may also influence the likelihood of a company getting into an index such as the Dow Jones Industrial Average(NYSEARCA:DIA), which could then lead to additional demand from ETFs that replicate the index. In that way, a stock split can lead to higher share prices eventually, as the supply/demand ratio changes.\nIn the past, when fractional share buying was not available for most investors, stock splits also could lead to more buying due to making shares more affordable for some investors. In today's environment, where fractional share buying is ubiquitous, that is not really the case any longer, however.\nLast year, two major companies, Tesla and Apple, split their stocks, which led to increased buying in both companies:\n<img src=\"https://static.tigerbbs.com/ad201a51d0c4eec6a6f9254a3509d062\" tg-width=\"635\" tg-height=\"433\" referrerpolicy=\"no-referrer\">Data by YCharts\nBetween July 30, 2020, and August 31, 2020, the date of the announcement of the upcoming stock split and the date of the actual stock split, Apple's shares rose rapidly, easily outperforming the market. That was likely not solely the result of the announced stock split, but it seems likely that this played a role in Apple's share price surge during that one-month period. In the month following the stock split, AAPL saw its shares decline by 12%.\nTesla, meanwhile, saw its shares rise by an incredible 81% in the time frame between the announcement of the stock split and the actual split, which was about half a month. Tesla's shares also declined by a little more than 10% during the month following the actual stock split. One could thus, it seems, make a case that buying shares of major companies when they announce a stock split and selling shares when the split happens could make sense. There is, however, no guarantee for this scenario to play out every time, and it is very much possible that the two examples above are outliers that are not representative of overall stock performance prior to and following a stock split.\nNVDA has seen its shares rise by 15%+ since the company announced its current stock split, thus possibly, we could see a similar pattern to what happened with Tesla and Apple, although at a less pronounced rate. NVDA has outperformed the broad market following the split announcement, and that may at least partially be the result of traders piling into the stock hoping for short-term gains.\nA1996 studyby David Ikenberry of Rice University shows that, at least in the 1980s and 1990s, stock splits oftentimes resulted in outperformancefollowingthe stock split. The stock price gains seen by TSLA and AAPL immediatelypriorto the stock split may be outliers.\nOverall, we can thus summarize that stock splits do not impact the underlying value of the company. Due to psychological factors, however, there may be irrational price movements in a stock's price prior to or following a stock split. Buying based on expectations of such movements is a strategy I would avoid, however, as it can't be foreseen whether these price moves do really materialize. Stock investments should, I believe, primarily be driven by factors such as growth, valuation, dividends, etc.\nIs NVIDIA Stock A Buy Or Sell Now?\nI wouldn't buy or sell based on news around a stock split alone, thus whether one wants to invest in NVIDIA is a question that I would approach from another side. Is the growth strong enough to justify paying a 50x earnings multiple?\n<img src=\"https://static.tigerbbs.com/92e9f946709618e90dea6ed23a0e5977\" tg-width=\"635\" tg-height=\"450\" referrerpolicy=\"no-referrer\">Data by YCharts\nNVDA is currently not only trading at a premium to most of its peers, but shares are also trading at a premium relative to how they were valued in the past. This is despite the fact that NVIDIA is a much larger company today than it was 5 or 10 years ago. Due to the fact that the law of large numbers will likely result in growth rates that are lower than what NVIDIA has delivered in the past, it seems questionable whether it's sensible for NVIDIA to bemoreexpensive than it used to be.\nNevertheless, since NVIDIA is experiencing very healthy growth still, and will continue to grow in the coming years, returns don't have to be bad. A while ago I laid out a scenario that results in ashare price of around $1,200for NVIDIA in 2027, which would equate to annual returns of around 7% from today's price -- not bad at all, but significantly less than what NVIDIA delivered in the past. In that scenario, NVIDIA grows its EPS to around $38 over the next six years, or by around 140% versus current estimates for 2021. I also calculated with an earnings multiple of around 30, which is much closer to how NVIDIA's shares were historically valued, compared to the current valuation. One can, of course, argue whether my growth estimates are too high or too low, but I found this to be a solid base case scenario. Using that price target to gauge whether NVIDIA is attractive today, I'd say shares are not a bad holding at all, but the return outlook does not convince me to enter a position here. If shares fell back to the $500 level, where they traded just a couple of months ago, the story would be a very different one, however -- at that point, buying could lead to compelling long-term returns.\nTakeaway\nNVIDIA will split its shares soon, but that alone is not a good reason to buy shares. TSLA and AAPL have seen their shares underperform following the stock split, at least for a while, and the same may happen for NVIDIA, although there is no guarantee for that. In the long run, i.e. over several years, stock splits tend to correlate with an above-average performance, but again, there is no guarantee that this will happen here.\nDue to the above-average valuation and due to the fact that shares trade at a premium to the analyst price target, I wouldn't buy shares here, despite NVIDIA's compelling growth outlook. If shares give back some of their gains from 2021, buying into a position could lead to attractive long-term returns, however.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Is Nvidia Stock A Buy Now Before Its Stock Splits?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIs Nvidia Stock A Buy Now Before Its Stock Splits?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-13 10:20 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4438814-nvidia-stock-buy-before-stock-split>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nNVIDIA has announced a stock split, and here's what you need to know about it.\nStock splits can lead to irrational price movements in the near term, but in the long run, growth and valuation ...\n\n<a href=\"https://seekingalpha.com/article/4438814-nvidia-stock-buy-before-stock-split\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NVDA":"英伟达"},"source_url":"https://seekingalpha.com/article/4438814-nvidia-stock-buy-before-stock-split","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1142072504","content_text":"Summary\n\nNVIDIA has announced a stock split, and here's what you need to know about it.\nStock splits can lead to irrational price movements in the near term, but in the long run, growth and valuation will be the important drivers for a stock's performance.\nNVIDIA experiences strong growth and is well-positioned to grow further, but its shares are historically expensive today.\n\nArticle Thesis\nNVIDIA Corporation(NASDAQ:NVDA)announced a stock splitthat will go into effect on July 20. Other companies, such as Apple(NASDAQ:AAPL)and Tesla(NASDAQ:TSLA)have seen their shares do well following stock splits last year, but I still don't think it's a good idea to buy solely due to an announced stock split. NVIDIA's shares are expensive, but on the other hand, the company is growing fast and has a lot of room for growth in the coming years. For long-term oriented investors, NVIDIA could be a solid investment, although waiting for a correction to get a more favorable entry price could pay off.\n\nSource:StockRover\nWe see that NVIDIA is currently trading at a steep premium compared to many of its peers, while also offering a dividend yield that is well below the average. To some degree, the premium seems justified due to NVIDIA's strong growth outlook.\nNVIDIA Stock Price\nNVIDIA Corporation has been one of the best performers in recent years, as the company saw its share price explode upwards due to a combination of fast growth, crypto mining tailwinds, a PC gaming boom that is great for NVIDIA's GPU segment, and the market's admiration for growth stocks:\nData by YCharts\nOver the last ten years, NVIDIA saw its shares deliver an incredible 4,900% return, turning a $10,000 investment into $500,000. Even in 2021, which saw some growth stocks underperform, NVIDIA has done very well so far, as its shares rose by around 50% during the first half.\nAt $815 per share, NVIDIA is currently trading just a couple of percentage points below its all-time high. The current consensus price target by the analyst community is $750, thus shares do seem rather expensive. If the analyst community is right, then NVIDIA will not generate compelling returns over the next year. One could indeed argue that shares have run too far this year and that a phase of consolidation would make sense, as the company's business growth has to catch up to the massive 50% share price increase in H1 alone. Based on current EPS estimates for this year, shares trade for 51x forward earnings -- again, this seems rather expensive, which may indicate that right now may not be the best time to enter or expand a position.\nIs NVIDIA Stock Going To Split Soon?\nThe announced stock split will go into effect on July 20. On that day, NVIDIA's shares are split at a 4-1 rate, which will make the share count grow to ~2.5 billion on a fully diluted basis. Shares should then trade for a little above $200, all else equal, although it is of course possible that NVIDIA's shares rise or fall between the time of writing and July 20.\nIs It Better To Buy Before Or After A Stock Split?\nIn theory, a stock split does not change the value of the underlying company; it just leads to the company being divided into more individual shares. There are, however, some psychological factors at play that can lead to share price performance being influenced by stock splits. First, shares may appear cheaper at first sight for those that do not look at metrics such as the earnings multiple, which may incite buying. On top of that, some investors seem to erroneously believe that buying shares before a stock split will somehow get them a larger part of the company once the stock split happens, which is, of course, not true. Investors will end up owning more shares than they originally purchased pre-split, but those shares won't amount to a greater ownership of the company.\nStock splits may also influence the likelihood of a company getting into an index such as the Dow Jones Industrial Average(NYSEARCA:DIA), which could then lead to additional demand from ETFs that replicate the index. In that way, a stock split can lead to higher share prices eventually, as the supply/demand ratio changes.\nIn the past, when fractional share buying was not available for most investors, stock splits also could lead to more buying due to making shares more affordable for some investors. In today's environment, where fractional share buying is ubiquitous, that is not really the case any longer, however.\nLast year, two major companies, Tesla and Apple, split their stocks, which led to increased buying in both companies:\nData by YCharts\nBetween July 30, 2020, and August 31, 2020, the date of the announcement of the upcoming stock split and the date of the actual stock split, Apple's shares rose rapidly, easily outperforming the market. That was likely not solely the result of the announced stock split, but it seems likely that this played a role in Apple's share price surge during that one-month period. In the month following the stock split, AAPL saw its shares decline by 12%.\nTesla, meanwhile, saw its shares rise by an incredible 81% in the time frame between the announcement of the stock split and the actual split, which was about half a month. Tesla's shares also declined by a little more than 10% during the month following the actual stock split. One could thus, it seems, make a case that buying shares of major companies when they announce a stock split and selling shares when the split happens could make sense. There is, however, no guarantee for this scenario to play out every time, and it is very much possible that the two examples above are outliers that are not representative of overall stock performance prior to and following a stock split.\nNVDA has seen its shares rise by 15%+ since the company announced its current stock split, thus possibly, we could see a similar pattern to what happened with Tesla and Apple, although at a less pronounced rate. NVDA has outperformed the broad market following the split announcement, and that may at least partially be the result of traders piling into the stock hoping for short-term gains.\nA1996 studyby David Ikenberry of Rice University shows that, at least in the 1980s and 1990s, stock splits oftentimes resulted in outperformancefollowingthe stock split. The stock price gains seen by TSLA and AAPL immediatelypriorto the stock split may be outliers.\nOverall, we can thus summarize that stock splits do not impact the underlying value of the company. Due to psychological factors, however, there may be irrational price movements in a stock's price prior to or following a stock split. Buying based on expectations of such movements is a strategy I would avoid, however, as it can't be foreseen whether these price moves do really materialize. Stock investments should, I believe, primarily be driven by factors such as growth, valuation, dividends, etc.\nIs NVIDIA Stock A Buy Or Sell Now?\nI wouldn't buy or sell based on news around a stock split alone, thus whether one wants to invest in NVIDIA is a question that I would approach from another side. Is the growth strong enough to justify paying a 50x earnings multiple?\nData by YCharts\nNVDA is currently not only trading at a premium to most of its peers, but shares are also trading at a premium relative to how they were valued in the past. This is despite the fact that NVIDIA is a much larger company today than it was 5 or 10 years ago. Due to the fact that the law of large numbers will likely result in growth rates that are lower than what NVIDIA has delivered in the past, it seems questionable whether it's sensible for NVIDIA to bemoreexpensive than it used to be.\nNevertheless, since NVIDIA is experiencing very healthy growth still, and will continue to grow in the coming years, returns don't have to be bad. A while ago I laid out a scenario that results in ashare price of around $1,200for NVIDIA in 2027, which would equate to annual returns of around 7% from today's price -- not bad at all, but significantly less than what NVIDIA delivered in the past. In that scenario, NVIDIA grows its EPS to around $38 over the next six years, or by around 140% versus current estimates for 2021. I also calculated with an earnings multiple of around 30, which is much closer to how NVIDIA's shares were historically valued, compared to the current valuation. One can, of course, argue whether my growth estimates are too high or too low, but I found this to be a solid base case scenario. Using that price target to gauge whether NVIDIA is attractive today, I'd say shares are not a bad holding at all, but the return outlook does not convince me to enter a position here. If shares fell back to the $500 level, where they traded just a couple of months ago, the story would be a very different one, however -- at that point, buying could lead to compelling long-term returns.\nTakeaway\nNVIDIA will split its shares soon, but that alone is not a good reason to buy shares. TSLA and AAPL have seen their shares underperform following the stock split, at least for a while, and the same may happen for NVIDIA, although there is no guarantee for that. In the long run, i.e. over several years, stock splits tend to correlate with an above-average performance, but again, there is no guarantee that this will happen here.\nDue to the above-average valuation and due to the fact that shares trade at a premium to the analyst price target, I wouldn't buy shares here, despite NVIDIA's compelling growth outlook. If shares give back some of their gains from 2021, buying into a position could lead to attractive long-term returns, however.","news_type":1},"isVote":1,"tweetType":1,"viewCount":34,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":3,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}