Advanced Micro Devices (AMD 3.40%) stock jumped 8.3% through 10 a.m. ET Monday, but the catalyst that sparked the move looks rather tenuous.
As StreetInsider.com reports today, Goldman Sachs analyst James Schneider raised his price target on AMD stock to $640 this morning, and that's really all the detail anyone has on the raise -- that it happened.
Image source: AMD.
Goldman still loves semiconductor stocks
AMD stock sold off hard at the end of last week, falling nearly 11% from Tuesday's all-time high to Thursday's close. Goldman hasn't lost faith in the semiconductor stock, however, instead taking advantage of last week's sell-off to quietly raise its price target on AMD. (Goldman had previously recommended buying AMD despite valuing it at only $450 -- a price much less than it's been trading at for weeks.)
Now, with AMD trading below $570 but Goldman saying it's worth $640, the "buy" rating makes more sense. And yet, in the absence of more detail about why Goldman thinks AMD stock is worth so much, investors need to consider carefully before following the advice of one analyst just baldly declaring the stock a "buy."
NASDAQ: AMD
Key Data Points
What's next for AMD investors?
I mean, consider the valuation. AMD stock trades for more than 170 times its trailing earnings today. Isn't that too much to pay?
Not necessarily. Next year's earnings are forecast to grow mightily, dropping AMD's forward P/E ratio down to just 74. What's more, S&P Global Market Intelligence data confirm that AMD is already making more money than its income statement currently reflects. Trailing free cash flow at the stock is $8.6 billion -- 72% more than reported net income.
With long-term earnings projected to grow 55% a year, AMD might be cheap enough to buy.
