What does the savvy investor do when the stock market is in turmoil? Buy, of course.
And with the major stock market indexes in free fall, now is the time to keep one's head and look for opportunities to accumulate shares on the cheap.
To cut to the chase, there's one stock that I think is a significant bargain at these prices: Nvidia (NVDA 1.53%). Here's why.
Image source: Getty Images.
Nvidia is at a discount
One way to tune out the noise in the stock market is to treat sell-offs like sales. When my favorite clothing store slashes prices by 20%, 30%, or 50%, do I wonder why they have done so? Probably not. I take the discount for what it is and say, "Thank you very much."
The same can apply to the stock market. There are countless reasons that lead to a stock market decline, but at the end of the day, investors don't need to get lost in the weeds of why the market declined. Instead, they should view a deep sell-off as an opportunity to buy shares at a better price.
Here's what I mean: As of this writing, Nvidia shares are trading for around $107 per share. That's down 26% from the stock's all-time high of $149. The stock's current decline is the third-largest drop from an all-time high in the last 10 years.
NASDAQ: NVDA
Key Data Points
Now imagine if someone had bought Nvidia shares on those dips. In 2018, the stock dropped more than 50% from its all-time high. In 2022, Nvidia shares bottomed out down around 66% from their all-time high.
And $10,000 invested in Nvidia shares in January 2019, then held until today, would be worth about $330,000. And remember, that's down 26% from the recent peak.
Similarly, $10,000 invested in Nvidia stock in January 2023, then held until today, would be worth nearly $80,000. Again, that includes the recent 26% decline.
In other words, prior big declines in Nvidia's stock price have been excellent times to buy. But what about this time? Will this time be different? I don't think so, and here's why.
Nvidia's valuation is nearing historic lows
With a market cap of $2.8 trillion, Nvidia is America's third-largest company. That's a big change from where it was in 2019 and 2022. Obviously, the company's stock has enjoyed an incredible run-up in price. But there's a reason for that.
The company's earnings skyrocketed. Consider this: In 2018 -- and as recently as 2023 -- Nvidia generated around $0.18 in diluted earnings per share (EPS). Last year, the company generated $2.94.
NVDA EPS Diluted (Annual) data by YCharts.
When you examine Nvidia's stock in light of this incredible earnings explosion, today's buying opportunity looks even better.
As of this writing, Nvidia's price-to-earnings (P/E) ratio has fallen to 39 times. That's one of the lowest levels since 2019. Moreover, it's significantly below the company's 10-year average of 60 times.
NVDA PE Ratio data by YCharts.
In summary, Nvidia shares once again look like they are serving up a fantastic opportunity for those willing to see it. Growth-oriented investors should take notice.
