Based on what a good company is made of, the short answer is "STAY AWAY". But you should make your own due diligence as far as valuation is concerned, since value creation is not the same as total shareholder´s return. Here is a short summary of what we think of Intel:
The quality of Intel´s business
- It has weak value creation drivers. Scroll down for the details.
- It has decent risk management and value creation track records.
- Its management does not seem to have enough grit (mix of passion and perseverance).
- Smart(er) Money (Insiders and/or Hedge Funds) is buying recently, which means they believe strongly in the company's future.
About Intel´s current valuation
We think valuation should be a personal exercise, and not be trusted as-is. The following summary should serve as directional information only.
- According to GuruFocus Fair Value model, it is 9.
- Analysts´ mean target price is 3.20USD.
- Rookie Investor's experimental model gives it #DIV/0! (below 0 is potentially overheated, while above zero seems safer. Maximum score is 1.5).
Detailed scorecard (click to expand)
Current & future value drivers: 5 out of 15 points
- Network effect 1/2. Do the company value proposition increase and marginal cost decrease when more participants are added, both customers and providers, and is there a critical mass of participants already? Can be negative if the addition of participants decreases the provided value or increases the marginal cost or if competitors are better positioned to reach critical volume first.
- Switching costs and price premium 1/2. Switching costs can be in terms of investment, data and knowledge. Price Premium can come when there are few alternatives or a freemium model with high NetRetentionRate.
- Revenue Quality 1/2. Comes from recurring purchases with short repurchase cycles or long-term commitments.
- Profitability -1/3. Measured as the operating Margin level and growth (+1 if higher than 10%, +1 if growing, +1 if higher than competitors)
- Barriers to entry 1/1. Can come from heavy or complex regulation, gate-keeping characteristics, high R&D or CAPEX thresholds.
- Intangibles 2/2. Can come from a strong brand, superior quality, high NPS, hard to copy design, trade secret or hard to copy/reproduce method and counter positioning.
- Future Growth 0/3. This score depends on the proven innovation capacity to develop organic ways to grow business (past), and if it has double digits revenue growth forecasts for the next 10 years (future). Extra points if it has industry leadership and is expanding internationally.
Risk management & value creation track records: -3 out of 5 points
- Capital alocation Health 0/1. Summed up by GuruFocus Financial Strenght Score
- Concentration in either clients or products -2/-2
- Resilience 1/1. +1 if able to produce profit in each one of the last 10 years.
- Past value creation 0/3. +2 if L5Y FCF growth > 20%, +1 if L5Y FCF growth > 10%, if only 3Y of data then +1 if L3Y FCF growth > 20%, anf +1 if accelerating trend L3Y growth > L5Y. -1 if FCF growth negative L5Y or less than 10% if only 3Y of data, or if no data
- Exposure to economic cycles -1/-2.
- Macro risks -1/-2.Geo political risk (regulation, sales and supply chain) or Ecosystem risk (contradictory incentives between network participants)
- ESG Risk 0/-2.
Management grit: 0.5 out of 3 points
- Company´s culture 1/1. Measured as employees rating according to Glassdoor (+1 for 4.0 or higher, 0 if 3.5 to 4, -1 if below 3.5).
- Mission Statement 0.5/0.5. Must be simple, inspirational and optionable.
- Founder led 0/0.5.Get the point if Founder/Family Run/Long Tenured CEO are still involved
- Ownership -1/1 . Gets negative point if insiders own less than 4%, 0 if between 4% & 8%, +1 if more than 8%.
Smart(er) Money: 2 out of 3 points
- Hedge Funds 0/0.5. Positive points if they increased positions on average in the past quarter.
- Insiders 2/2. Gets 2 points if there are more than one insider buying in the past 6 months, 1 point if there is at least one..
- Analyst´s expectations 0/0.5.Gets the point if the mean Analysts´ target is over 20% current price. Negative point if the mean target is more than 20% lower than current price.
Intel Final Score
INTC scores 4.5, I consider everything above 10 as ok businesses and above 14 as wonderful.
If you want to know more about why and how I score stocks this way, here is the post for you. The Rookie investor conducts this kind of scoring every day for a shortlist of 200 promising stocks. If you want to find the score for other stocks just search here.
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The author of this post owns shares of INTC. The Rookie Investor has a disclosure policy. This article by The Rookie Investor is not financial advice as it does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. eToro is a multi-asset platform that offers both investing in stocks and cryptoassets, as well as trading CFD assets. Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
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