On 3/25/2024, investors could buy 100% of NVDA, or buy 100%
of the thirty-three (33) companies listed below.
| NVIDIA | 33 Alternatives | ||
| Market Value | $2.38 trillion | $2.39 trillion | 1% more than NVIDIA |
| Revenue | $60.9 billion | $1.21 trillion | 1,880% more than NVIDIA |
| Net Income | $29.8 billion | $111 billion | 274% more than NVIDIA |
| Price to Sales | 39 | 2.0 | |
| Price to Earnings | 80 | 21.5 |
American Express, Amgen, Archer-Daniels Midland, AT&T, Baker Hughes, BlackRock, Coupang, Dell Technologies, Discover Financial, Dollar Tree, Dover, Edwards Lifesciences, EOG Resources, Estee Lauder Companies, Fortinet, GE HealthCare Technologies, GLOBALFOUNDRIES, Intuit, Kinder Morgan, Kroger, L3Harris Technologies, Moody’s Corporation, PG&E, Progressive, Ross Stores, Stryker, Sysco, T. Rowe Price Group, Union Pacific, Veeva Systems, Verizon, W.W. Grainger and Waste Management.
Currently, NVDA’s price to sales ratio is 39. In the last 6,103 trading days (24 years), NVDA had a P/S of 2.0 or less on 1,028 days (16.8%). In the future, NVDA may again have a P/S ratio less than 2. What does that imply for NVDA’s price?
Currently, NVDA’s price to earnings ratio is 80. In the last 6,103 trading days (24 years), NVDA had a P/E of 21.5 or less on 1,355 days (22.2%). In the future, NVDA may again have a P/E ratio less than 20. What does that imply for NVDA’s price?
Answers: The Profit Map™ informs us:
- To produce a 15% price gain per year for 5 years, NVDA’s price must rise to $1,910.83.
- If the price rises to $1,910.83, then in 5 years NVDA’s market cap must rise to $4.8 trillion.
- If NVDA’s revenues grow at 32% per year, in 5 years they’ll grow to $244 billion. What is the statistical probability that if NVDA’s revenues grow from $60.9 billion to $244 billion in 5 years, NVDA will have a market value of $4.8 trillion? What is the probability that a company with $244 billion will have a market value of $4.8 trillion? What do the historical precedents tell us about the typical range of P/S ratios for companies with $244 billion in revenues?
- How many companies in the past 30 years have had revenues of $60.9 billion and grew at 32% per year for 5 years? What is the probability that NVDA will achieve this rate of growth for 5 years?
- If NVDA’s revenues grow at 32% per year for 5 years, to produce a 15% price gain per year for 5 years, NVDA’s P/S ratio would then have to be 6 in 5 years. In the past 30 years, how many companies with revenues of $244 billion had a P/S ratio of 19.6? Currently, there are 11 US companies with revenues over $244 billion. All of them have a P/S ratio under 7. What is the statistical probability that NVDA will have a P/S ratio of 19.6 if their revenues reach $244 billion?
- If NVDA’s revenues grow at 32% per year for 5 years, their profit margin is 49% 5 years from now, and their market cap is $4.8 trillion, NVDA’s P/E ratio would then have to be 9 5 years from now. In the past 30 years, how many companies with revenues of $244 billion and a profit margin of 49% had a P/E ratio of 39.9? What percentage of those companies’ stock prices rose? What percentage fell? By how much, and over what time periods? Currently there is 1 company in the technology sector with revenues over $244 billion, Apple. Apple’s current profit margin is 26%. Currently there are 11 companies with revenues over $244 billion. Their average P/E ratio is 27.
The Profit Map™ allows investors to calculate the actual future price of any stock based on their assumptions of the growth of its revenues, its profit margins, its future price to earnings and its future price to sales ratios. www.ProfitMap.ai
No investor can know what these four variable factors will be in the future. However, the Profit Map™ provides users with data to assist them in making realistic assumptions and provides immediate calculations for the potential profits or losses based on their assumptions.
Conclusion: All growth stocks eventually experience both P/E compression and P/S compression. Therefore, we caution investors of the probable impact of valuation ratio compression on NVDA’s stock.
Equity Risk Sciences, Inc. (www.ERS.ai) is an investment data science company, providing research tools, ratings, and custom portfolios for retail and institutional investors.
Neither ERS nor its subsidiaries hold any position, long or short, in any mentioned security.
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