Share Repurchase Activity Is the X-Factor for NVIDIA Corporation (NVDA) This Quarter

Page 1 of 2

Graphics chip and mobile processor maker NVIDIA Corporation (NASDAQ:NVDA) provided guidance below Wall Street’s expectations when it reported earnings in November, and consequently has sat out the recent stock market rally.

NVDA Chart

NVIDIA and S&P 500 Relative Performance. Data by YCharts.

However, the company made some tentative steps toward returning cash to shareholders, which softened the blow. For the first time, NVIDIA initiated a quarterly dividend. With an annual payout of $0.30, NVIDIA’s dividend yield of 2.4% is fairly good for a tech company. NVIDIA’s board also extended the company’s share repurchase plan. One of the key things to look for in NVIDIA’s upcoming earnings report (Wednesday after market close) is whether the company made use of the repurchase authorization to retire shares.

NVIDIA Corporation (NASDAQ:NVDA)Too much cash?
Strictly speaking, there’s no such thing as too much cash. However, NVIDIA’s recent capital allocation policy has not served shareholders well. As of late October, the company had $3.43 billion in cash and short-term investments on its balance sheet. Assuming no share repurchases, this amount has probably grown to around $3.8 billion by now, as NVIDIA received a $300 million royalty payment from Intel Corporation (NASDAQ:INTC) in January as part of a cross-licensing agreement between the two companies. Cash thus represents nearly half of NVIDIA’s market cap of $7.9 billion.

While NVIDIA has had the authority to buy back up to $1.24 billion of stock for several years, the company has not repurchased any shares since 2008. NVIDIA’s share count has grown significantly since then as employees have exercised their stock options.

NVDA Shares Outstanding Chart

NVDA Shares Outstanding. Data by YCharts.

This increase in the share count dilutes the holdings of NVIDIA’s investors and leads to lower EPS. By using excess cash to repurchase shares, NVIDIA could reverse the recent growth in share count, boost EPS, and (hopefully) increase demand for the stock.

Waiting for earnings catalysts
Obviously, profit is the ultimate driver of value for any business. However, NVIDIA’s near-term earnings do not really reflect the company’s future prospects. As I wrote last week, NVIDIA will have an opportunity to challenge market leader QUALCOMM, Inc. (NASDAQ:QCOM) for a piece of the growing smartphone processor market when it releases its first integrated mobile processor (code-named “Grey”). However, this product will most likely debut in the fall; until then, NVIDIA is at a severe disadvantage and is unlikely to gain market share.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!