Many high-growth stocks, Nvidia (NVDA 2. 62%) s looked expensive on a fundamental basis over the last three years, even as its price shot higher by almost 980%.
Now, some investors ly feel they've missed out because s trade at what would be considered a relatively high price-to-earnings (P/E) ratio.
However, there's an argument to be made that Nvidia is still an inexpensive stock.
Here's a look at both sides of the discussion, including one chart that really tells the story that investors should focus on. Image source: Getty Images. Is Nvidia stock expensive, or is it a bargain.
Even with the stock's resounding three-year gain, its valuation has decreased when looking at price-to-free cash flow (P/FCF) and P/E ratios.
That makes sense with sales exploding thanks to unprecedented demand for its GPU chips and other ducts supporting artificial intelligence (AI) infrastructure.
Both of those financial metrics hit one-year lows as recently as early April.
The stock has surged higher since then, but both P/FCF and trailing P/E remain below their respective averages over the past 12 months.
A P/E of almost 50 based on last year's earnings still may seem excessively high to some, but investors need to look forward, not back.
An estimated forward P/E of 35 is much more reasonable for a growth stock Nvidia. And growth is what is driving the story.
Global data center construction is driving unprecedented demand for Nvidia ducts. Clusters of servers containing its GPUs, networking ducts, and AI architecture power these centers.
That's led to rocketing sales in Nvidia's data center segment. A visual display of that growth is what should give investors confidence to buy the stock at recent levels. Data source: Nvidia.
Chart by author. Nvidia's data center sales continue to increase to record levels every quarterly period. The company plans to release next-generation chips on an annual cadence as well.
That should keep sales thriving and the stock moving higher as a result. Howard Smith has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia.
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