Intel (NASDAQ:INTC) had already endured a difficult year before it reported its results last week. When those numbers were released, the stock’s free fall went even deeper. Now, the technology company’s shares have fallen more than 60% year-to-date.
The stock hasn’t traded at this low in over a decade and just had its worst day on the market in 50 years. While the stock has plenty of risks, has it become too cheap to pass up at the current price?
What went wrong at Intel?
Intel invested in building up its foundry business to meet the huge demand of the United States, which needed a large domestic chipmaker it could rely on rather than having to rely on foreign suppliers. But it was not an easy proposition for the company and its shareholders.
On August 1, the company released its results for the period ending June 29, and both revenue and profit performance were disappointing. Intel’s revenue for the period came in at $12.8 billion, down 1 percent from the same period last year. Even more alarming was the nearly $2 billion operating loss the company incurred, almost double the year-ago figure. Intel’s restructuring and other costs rose by more than $740 million during the period, and that was a major reason for the deteriorating profit.
To improve its financial position, Intel is reducing its workforce by 15% and implementing “sweeping spending cuts” to save $10 billion in costs by 2025. The company has also announced that it will suspend its dividend.
Have Intel shares become a cheap buy?
Intel’s stock trades at a price-to-book ratio of less than 0.8, and the price-to-sales ratio is also modest at 1.6. However, according to analyst estimates, the stock trades at 34 times expected future earnings, which is reasonable given the average S&P500 Shares are trading at a multiple of 22.
Wall Street analysts have been cutting their price targets for the tech stock, but many of them are still above the current price. The analyst consensus price target is nearly $33, which would imply more than 66% upside for investors who buy the stock today. While that doesn’t mean the stock is a surefire bet to deliver those kinds of gains, it does help illustrate how undervalued the stock could be in the near term (analyst price targets typically take into account where the stock could go over the next 12 months).
While Intel’s shares may seem cheap, the danger is that they could also prove to be a value trap. The company is pursuing an ambitious strategy to turn around its business and cut costs. And with no clarity on how well it will succeed, investors should demand a high margin of safety on this stock and therefore expect a discount.
Should you invest in Intel?
Intel stock can be a risky investment in your portfolio. The company has a big task ahead of it: it needs to grow again, build a strong foundry business and remain profitable. I’m not optimistic that this will all work out smoothly, which is why I would hold off on buying Intel stock today.
The stock has the potential to be a good buy for contrarian investors with a high risk tolerance over the long term, but you’ll need to have an incredible amount of patience. Most investors are probably better off targeting other growth stocks instead.
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David Jagielski does not own any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Intel Stock Down 60% This Year – Is It A Bargain? was originally published by The Motley Fool
