AMD's Advance Sits On Weak Fundamentals, But With Room To Grow

Leveraged Growth

In an effort to boost their top-line growth, AMD embarked on strategic partnerships with Sony, Microsoft, and HP over the years. However, in 2016, these companies made up 59% of the company’s total revenue (Zach’s Equity Research). Here’s the problem. While Microsoft has been growing solidly, Sony’s revenues, although increasing, aren’t nearly as good, and Hewlett Packard actually has declining revenues. While other factors play into these topline numbers, the point of having too few revenue streams leaves AMD exceptionally vulnerable.

However, the bigger concern lies in the debt the company maintains. The good news is that they don’t have much due for quite some time, leaving them locked into lower interest rates in an environment where borrowing costs are increasing. The bad news is AMD has funded a lot of their recent business with debt. While the growth realized recently is an outstanding development, they aren’t out of the woods yet. The company plans to reduce its debt structure in the near future with increased cash flow. Yet, given their high leverage and concentration of products and customers, the company has little room for error.

Final Thoughts

Although AMD sits in a risky spot, the company continues delivering solid growth numbers. With the stock priced near $20, they have little room for error, and the price itself doesn’t offer a lot of value. All signs point to continued growth and expansion in their core product markets. Because of the ambiguity to many things investors just don’t know, the stock would appear reasonably valued if not over-valued, when discounting for risk.

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Disclosure: I have no interest in any stocks mentioned, and no holdings in those companies. This article presents only my opinions. I am not receiving compensation for it. I am not in any way ...

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