Why Advanced Micro Devices (AMD) Continues to Fall Today

NEW YORK (TheStreet) -- Advanced Micro Devices  (AMD) continued to fall Monday after last week's modest second-quarter earnings report and lower-than-expected guidance.

The semiconductor company reported earnings of 2 cents a share, a penny less than the estimate of 3 cents a share from analysts polled by Thomson Reuters. The company reported $1.44 billion in revenue, in line with the consensus estimate.

AMD also issued guidance of 2% sequential revenue growth for the third quarter, which came up well short of the 9% expectation.

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The stock was down 1.57% to $3.77 at 9:48 a.m.

Separately, TheStreet Ratings team rates ADVANCED MICRO DEVICES as a "hold" with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ADVANCED MICRO DEVICES (AMD) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including relatively poor performance when compared with the S&P 500 during the past year and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.7%. Since the same quarter one year prior, revenues rose by 24.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • ADVANCED MICRO DEVICES reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ADVANCED MICRO DEVICES continued to lose money by earning -$0.11 versus -$1.59 in the prior year. This year, the market expects an improvement in earnings ($0.17 versus -$0.11).
  • 37.96% is the gross profit margin for ADVANCED MICRO DEVICES which we consider to be strong. Regardless of AMD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AMD's net profit margin of -2.49% significantly underperformed when compared to the industry average.
  • In its most recent trading session, AMD has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The debt-to-equity ratio is very high at 4.41 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, AMD's quick ratio is somewhat strong at 1.21, demonstrating the ability to handle short-term liquidity needs.
  • You can view the full analysis from the report here: AMD Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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