Intel (INTC): Buy, Sell, or Hold Post Q1 Earnings?

Yahoo

14 hours ago

Over the past six months, Intel has been a great trade, beating the S&P 500 by 14.9%. Its stock price has climbed to $23.42, representing a healthy 22% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Intel, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team's opinion, it's free.
Despite the momentum, we're swiping left on Intel for now. Here are three reasons why there are better opportunities than INTC and a stock we'd rather own.
A company's long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Intel's demand was weak over the last five years as its sales fell at a 6.9% annual rate. This was below our standards and is a sign of poor business quality. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Analyzing the trend in its profitability, Intel's operating margin decreased by 46.7 percentage points over the last five years. Intel's performance was poor no matter how you look at it - it shows that costs were rising and it couldn't pass them onto its customers. Its operating margin for the trailing 12 months was negative 20.6%.
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
As you can see below, Intel's margin dropped by 25 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because it's already burning cash. If the longer-term trend returns, it could signal it's in the middle of a big investment cycle. Intel's free cash flow margin for the trailing 12 months was breakeven.
We cheer for all companies solving complex technology issues, but in the case of Intel, we'll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 38.9× forward P/E (or $23.42 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
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