What is Nvidia's price assuming?
Nvidia
Near fair value
The business looks worth $135 to $272 a share. It costs $217.94, 7% below our fair value of $233. In short: the price is within the fair-value range.
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What one share costs today.
The range across our methods, with $233 in the middle.
Sales growth needed for the next 5 years to justify the price. We assumed 25.0%.
Of 10,000 simulated futures, how many leave the share worth more than its price.
Cheap is not the same as a bargain
A great business at a fair price
Munger's zone: a business that earns far more than it costs to fund, at a price that does not assume miracles. Over long periods these have tended to beat bargains.
- It earns 54% a year on the money invested in it; investors require 12.8%.
- Sales grew 68.3% a year over the last five years.
- To be worth today's price, sales must grow about 32.1% a year for the next 5 years.
Business quality here means return on capital against the required return, and whether sales are growing.
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Against its industry
Is it doing better than businesses like it?
Every way we valued it
8 methods, side by side.
One method can be argued with. When most of them land on the same side of the price, that is worth noticing; when one disagrees, it is worth a look.
| Method | Value per share | Against the price | Counts |
|---|---|---|---|
Cash-flow value Ten years of cash flows, then steady growth | $155 -29% vs price | weight 1.5 | |
Cash flows + sale Ten years of cash flows, then sold at a typical price | $430 +97% vs price | weight 1.5 | |
Cash to shareholders Only the cash that could reach shareholders | $155 -29% vs price | weight 0.5 | |
Future dividends Future dividends, added up | $102 -53% vs price | weight 0.5 | |
Book value + extra profit What the books say, plus profit above the required return | $108 -50% vs price | weight 0.5 | |
Priced like its peers What similar companies trade at | $254 +17% vs price | weight 3 | |
If it never grows Today's profit, never growing: a floor, not counted | $29 -87% vs price | not counted | |
Simulation (middle) The cash-flow method run 10,000 times | $160 -27% vs price | weight 1 |
Dot = the method's value. Gold band = the value range. Red line = today's price.
What if?
Change the assumptions. Watch the value move.
This redoes the cash-flow method live, from the same cash flows the engine computed. Drag the sliders to see how much the answer depends on each guess.
At our assumptions this method gives $155; it is one of the 8 methods in the fair value.
What the price assumed before
Was the market right about NVDA?
Report card
Is it a good business?
How much profit the business earns on the money invested in it, and how steady that is.
Whether it could get through a bad year: debt, interest and cash.
Whether the dividend is covered by the cash the business brings in.
How complete and consistent the filings behind these numbers are.
History
Sales and operating profit
The words on this page
What the business is worth based on the cash it will produce, regardless of today's price.
Professionals call it: Intrinsic value / fair value
The low-to-high band of what the shares could be worth, rather than one number.
Professionals call it: Value range
The yearly return investors need before this investment is worth making. Future cash is 'discounted' at this rate: the higher it is, the less future cash is worth today. Pros call it WACC, the weighted average cost of capital.
Professionals call it: Discount rate / WACC
Return on invested capital: profit per dollar put into the business.
Professionals call it: ROIC
Cents of operating profit per dollar of sales.
Professionals call it: Operating margin
The first years of the forecast, before growth fades to the long-run rate.
Professionals call it: High-growth years
How fast cash flows grow forever after the forecast.
Professionals call it: Terminal growth
The price at which the shares are cheap enough to leave room for error.
Professionals call it: Buy-below price
Runs the valuation 10,000 times with random but realistic inputs to get a range, not one number.
Professionals call it: Monte Carlo
Discounted cash flow: add up all future cash flows, each shrunk ('discounted') because money later is worth less than money now.
Professionals call it: DCF
Valuing a company by the multiples similar companies trade at.
Professionals call it: Comps / peers
Price-to-earnings: how many years of current profit the price represents.
Professionals call it: P/E