NVIDIA currently carries a Zacks Rank #2 (Buy). However, we beg to differ due to its consistent financial performance and strong growth opportunities in various untapped markets like automotive, healthcare and manufacturing over the long term. Therefore, many would argue that the stock is a risky bet. Nonetheless, NVIDIA trades at a massive premium to the semiconductor industry’s forward P/E multiple of 23.5X. NVIDIA's stock trades at a one-year forward P/E of 42.3X compared with its five-year average of 38.5X. The company is currently authorized to repurchase up to $7.24 billion in shares through December 2022.
Moreover, NVIDIA is evaluating the timing of resuming share repurchases. In fiscal 2021, NVIDIA paid out dividends of $395 million. Notably, the company returned approximately $6 billion to shareholders through dividend payments and share buybacks in the last five fiscals. The higher cash flow generating ability lends NVIDIA the flexibility to invest in long-term growth prospects and return money to its shareholders. The company’s accelerated revenue growth along with improving operating efficiency is bringing in higher cash flows. NVIDIA boasts a sturdy cash-flow generating ability. Since it has net cash available on its balance sheet, the existing cash can be used for pursuing strategic acquisitions, investment in growth initiatives and distribution to shareholders. As of Jan 31, 2021, the company had cash and cash equivalents of nearly $11.56 billion, which is significantly higher than its total debt of $5.96 billion. Notably, it is a cash-rich company with a strong balance sheet. NVIDIA’s efforts to boost shareholder value are noteworthy.
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