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Why Analog Devices, Inc. (NASDAQ:ADI) Could Be Worth Watching

Let's talk about the popular Analog Devices, Inc. (NASDAQ:ADI). The company's shares had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of US$159 to US$174. However, is this the true valuation level of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Analog Devices’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Analog Devices

What is Analog Devices worth?

According to my valuation model, Analog Devices seems to be fairly priced at around 6.6% below my intrinsic value, which means if you buy Analog Devices today, you’d be paying a fair price for it. And if you believe that the stock is really worth $181.55, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Analog Devices’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Analog Devices look like?

earnings-and-revenue-growth
earnings-and-revenue-growth

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Analog Devices' earnings over the next few years are expected to increase by 91%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? ADI’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

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Are you a potential investor? If you’ve been keeping tabs on ADI, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Analog Devices, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Analog Devices you should be aware of.

If you are no longer interested in Analog Devices, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.