Today we're going to take a look at the well-established Analog Devices, Inc. (NASDAQ:ADI). The company's stock received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$180 at one point, and dropping to the lows of US$139. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Analog Devices' current trading price of US$139 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at Analog Devices's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Analog Devices
What Is Analog Devices Worth?
Analog Devices appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, I've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. I find that Analog Devices's ratio of 37.96x is above its peer average of 15.46x, which suggests the stock is trading at a higher price compared to the Semiconductor industry. But, is there another opportunity to buy low in the future? Given that Analog Devices's share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Analog Devices?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. Analog Devices' earnings over the next few years are expected to increase by 97%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? ADI's optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question - is now the right time to sell? If you believe ADI should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping an eye on ADI for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for ADI, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Analog Devices, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for Analog Devices and we think they deserve your attention.
If you are no longer interested in Analog Devices, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here