Intel (NASDAQ: INTC) was already having a rough year before it reported earnings last week. When those numbers came out, the stock's free fall went even deeper. Now, shares of the tech company are down more than 60% since the start of the year.
The stock hasn't traded at such low levels in more than a decade, and it's coming off its worst day on the market in 50 years. While there's plenty of risk with the stock, has it become too cheap to pass up at its current price?
What has gone wrong for Intel?
Intel has been investing in building its foundry business in order to meet a big need in the U.S. for the country to have a large domestic chipmaker it can count on, as opposed to having to rely on foreign sources. But it hasn't exactly been a smooth ride for the company and its shareholders.
On Aug. 1, the company reported its results for the period ending June 29, and it was an underwhelming performance on both the top and bottom lines. Intel's revenue totaled $12.8 billion for the period, which was down 1% from the prior-year period. What was even more alarming was the near $2 billion operating loss the company incurred, which was nearly double the loss it incurred a year ago. Intel's restructuring and other charges increased by more than $740 million during the period, and that was a key reason for the worsening bottom line.
In order to improve its financials, Intel is reducing its headcount by 15% and is "implementing comprehensive reduction in spending" as it looks to save $10 billion in costs in 2025. The company has also announced that it would be suspending its dividend.
Has Intel stock become a cheap buy?
Intel's stock is trading at a price-to-book multiple of less than 0.8, and its price-to-revenue multiple is also modest at 1.6. However, based on analyst estimates, the stock is trading at 34 times its estimated future earnings, which is a bit high given the average S&P 500 stock trades at a multiple of 22.
Wall Street analysts have been lowering their price targets for the tech stock, but many of them are still higher than where it trades right now. The consensus analyst price target is nearly $33, which would imply an upside of more than 66% for investors who buy the stock today. That doesn't mean the stock is a surefire bet to generate those types of gains, but it does help emphasize how undervalued the stock may be in the short term (analyst price targets normally look at where the stock could go within the next 12 months).
Intel's stock does appear to be cheap, but the danger is it could also end up being a value trap. The company is embarking on an ambitious turnaround strategy to revamp its business and slash costs. And without clarity as to how well that will go, investors should be demanding a high margin of safety with this stock, and thus, a discount should be expected.
Should you invest in Intel?
Intel's stock can be a dangerous investment to hold in your portfolio. The company has a tall task ahead of itself in trying to return to growth, build up a strong foundry business, and accomplish that while maintaining a profit. I'm not optimistic that it can do all of that smoothly, which is why I would hold off on buying shares of Intel today.
The stock has the potential to be a good buy in the long run for contrarian investors with a high-risk tolerance, but you would need to be incredibly patient with it. Most investors are better off likely pursuing other growth stocks instead.
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David Jagielski has no position in 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.
Down 60% This Year, Is Intel Stock a Bargain Buy? was originally published by The Motley Fool