Why Now's the Time to Buy NVIDIA Stock

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Shares of NVIDIA  (NASDAQ: NVDA  ) popped more than 4% last Friday after the graphics chip specialist beat estimates with its latest quarterly earnings. However, with the stock sitting within sight of its its 52-week-high set last August, many investors are wondering whether it's too late to buy the stock. Let's dig in to find out.

The numbers
For the quarter, NVIDIA turned in sales of $954.7 million, beating analysts' expectations of $940.5 million. Though non-GAAP earnings per share fell 53.6% from the fourth quarter, they rose 13% from the same year-ago period to $0.18 per share, exceeding estimates which called for earnings of $0.16 per share on the same basis.

NVIDIA also took home more of every dollar last quarter thanks largely to increased adoption of its Kepler line of GPUs, which helped the company achieve record GAAP and non-GAAP gross margins of 54.3% and 54.6%, respectively. 

In addition, NVIDIA made plenty of progress in its quest to return at least $1 billion to shareholders this fiscal year, repurchasing $100 million of its own shares and paying $46.3 million in dividends. Going forward, management plans to hold the quarterly dividend steady at $0.075 per share, and says they'll return additional cash of at least $750 million, primarily through future share repurchases. For those of you keeping track, that currently represents around 8.5% of the value of NVIDIA's outstanding shares. 

Better yet, despite returning more than $146 million to shareholders last quarter, NVIDIA's cash pile deceased by just $14.5 million during the quarter, helped by the company's free cash flow of $110 million. NVIDIA also currently carries no debt and boasts cash and equivalents of $3.71 billion, or more than 42% of its entire market cap.

Going forward, management expects second-quarter revenue to be around $975 million, while gross margin should remain steady with the record margin achieved in Q1.

Keeping in mind NVIDIA already told us its new Tegra 4 line of processors had more design wins in February than Tegra 3 had in total, the company should also have no problems returning to sequential growth in the second half of this year as management claims. Even better, the company elaborated on the performance of its new fully integrated 4G LTE mobile processor, the Tegra 4i, by stating it's "three times faster yet half the size of its nearest competitor" -- a not-so-subtle dig at industry stalwart Qualcomm and its competing line of LTE mobile processors.

Of course, the folks at Qualcomm say they're not worried, especially considering their new Snapdragon 800 series processors is set to enter mass-production in late May and NVIDIA is comparing the Tegra 4i to currently existing chips.

Even so, it remains to be seen just how the Snapdragon 800 line will stack up, with at least one group of analysts suggesting Tegra 4 might still have the edge.

Foolish final thoughts
In the end, despite the fact NVIDIA stock has steadily climbed more than 20% over the past six months, I'm convinced its valuation remains reasonable at just under 16 times trailing earnings. Back out all that cash, and its price-to-earnings ratio drops closer to 9.

That's more than cheap for me, and I can't imagine it'll stay that way when NVIDIA returns to sales growth later this year.

If you'd still like to learn more about NVIDIA, The Motley Fool's premium report examines NVIDIA's stumbling blocks, but also hones in on opportunities that many investors are overlooking. We'll help you sort fact from fiction to determine whether NVIDIA is a buy at today's prices. Simply click here now to unlock your copy of this comprehensive report.

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