Market Overview

Price Over Earnings Overview: Advanced Micro Devices

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Looking into the current session, Advanced Micro Devices Inc. (NASDAQ: AMD) is trading at $78.97, after a 3.96% decrease. Over the past month, the stock fell by 3.44%, but over the past year, it actually increased by 138.27%. With questionable short-term performance like this, and great long-term performance, long-term shareholders might want to start looking into the company's price-to-earnings ratio. 

Assuming that all other factors are held constant, this could present itself as an opportunity for shareholders trying to capitalize on the higher share price. The stock is currently under from its 52 week high by 16.24%. 

[The P/E ratio measures the current share price to the company's earnings per share. It is used by long-term investors to analyze the company’s current performance against its past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also shows that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future. 

Most often, an industry will prevail in a particular phase of a business cycle, than other industries. 

Advanced Micro Devices Inc. has a better P/E ratio of 158.13 than the aggregate P/E ratio of 61.09 of the Semiconductors & Semiconductor Equipment industry. Ideally, one might believe that Advanced Micro Devices Inc. might perform better in the future than it’s industry group, but it’s probable that the stock is overvalued. 

There are many limitations to P/E ratio. It is sometimes difficult to determine the nature of the earnings makeup of a company. Shareholders might not get what they're looking for, from trailing earnings.

 

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