Intel INTC- A Profitable and Semi-valued Company

Intel Corporation (INTC)

Sector: Technology

Industry: Semiconductor- Broad Line

Intel Corporation designs, manufactures, and sells integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices, and handhelds. The company also offers system on chip products that integrate its core processing functionalities with other system components, such as graphics, audio, and video, onto a single chip.

How valuable is the Stock?

How does one know how valuable a stock is? Cash is King! If this is the case, INTC has what it takes to blossom as an investment. When we think about value we have to think about the potential growth. How much potential? Something called the price to sales ratio gives us the best indicator of this. The more money a company has coming in through sales compared to how much working capital it has speaks volume of its health. The lower the price/sales ratio, the healthier it is. If we compare INTC to its industry, we find a slightly higher lower ratio than we want. The industry comes in with a 2.82 ratio while INTC stands at 3.04. If we take seriously “Cash is King,” then the second most important thing we need to consider is how much money is flowing through this company as compared to its price. This is called the price to cash flow ratio. The closer the ratio gets to that magical “100” the less capability a company has. “100” means it can just pay its bills because the value of the company is equal to the amount of money coming in and no more. The industry stands at 15.70 while INTC shows off just over two thirds of that, coming in at 10.50. We have an abundance of upside potential compared to the industry as a whole. Since we compare companies to their industry to define their health there are two more ratios that we consider. Each ratio is defined by how low it is. The lower the better value the company has. The price to earnings ratio (P/E Ratio) is slightly higher but the price to book ratio also come in lower than the industry as a whole.

Our conclusion- this is valued slightly higher than most companies in its industry. We give it an “B-”

How profitable is the Company?

If a company has a good sales force and the money is flowing, that is a possible good sign for an investment. But alone, this is not good. What if a company brings in money but then spends it as fast as it brings it in? What if it costs them almost as much to make a sale as it does to sell? These are important things to think about and know if you are going to put your money into a company. To know things like this, I would ask the question: “How much money is left over from a sale after you pay all your costs to make that sale?” This is called the gross margin. Comparing the industry to INTC, the industry comes in at 55.60%, so for every dollar sold, 55.6 cents is left over. It costs the industry 45.4 cents to make one dollar. INTC’s gross margin is 59.7%. A little better! This means that it is costing FUL only 40.3 cents to make a dollar. This shows better profitability as compared to the industry as a whole! The only other question I would ask is: “How good is the company at controlling its costs?” This is sometimes referred to as the net profit margin. If we divide the net profit by net revenues we come up with a %. The higher the % the better at money management the company is. The industry’s net profit margin is 13.80%. So, for every dollar they make (after taxes) their REAL profit is 13.8 cents. INTC comes in higher at 16.40%! They are far more profitable than the industry as a whole. The 5 year margins also have FUL above the Industry as whole.

Our Conclusion- this company is extremely profitable! We give it an “A”

Can the Company Pay its Debts?

With the financial collapse in 2008 of the markets and all the companies that would have gone under because they could not pay off their debt, we like to know how strong a company is before we are willing to invest our money in it. “Here Today, Gone Tomorrow” is not something we think wise. The first question we would ask any company is how much debt has you accumulated as compared to the amount of money and/or property you own? This is known as the debt/equity ratio. If a company has potential for growth it will have a lot more cash than it would debt. The industry ratio is .23 this means that on a whole; companies in this field do not finance a lot of their assets through debt. This industry on a whole is well below 1.00. INTC is not in the norm for the industry they pop up a very healthy 0.06 that is light years better than the average company they are compared to. And the second most important thing to look at is a company’s ability to pay the interest on its debt. How well can INTC pay off its debts quickly if needs be with its current cash on hand? This is called the quick ratio. They do not come in quite as good as the industry as a whole. (2.5 to 2.7) The last question I might as is this: “Does INTC have enough assets to pay off its debts over the next 12 months?” know as the current ratio, the industry averages 3.00 while INTC comes in slightly lower again at 2.70. INTC is definitely not leading the industry when ti coems to debt reduction capabilities.   Our Conclusion- this company leans slightly on the low side as compared to the industry as a whole.  We give it a “C-”

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