Down 60% this year, is Intel stock a bargain?

Intel (INTC -3.81%) it was already having a rough year before reporting earnings last week. When those numbers came out, the stock’s free fall was even deeper. Now, the tech company’s shares are down more than 60% since the start of the year.

The stock hasn’t traded at such lows in more than a decade and is coming off its worst market day in 50 years. While there is plenty of risk with the stock, has it become too cheap to move at the current price?

What went wrong for Intel?

Intel invested in building its foundry business to meet the great need in the US for the country to have a large domestic chipmaker to rely on, as opposed to relying on foreign sources. But it hasn’t exactly been a smooth ride for the company and its shareholders.

On August 1, the company reported its results for the period ended June 29, and it was a disappointing performance on both the top and bottom lines. Intel’s revenue totaled $12.8 billion for the period, down 1% from the year-ago period. What was even more alarming was the nearly $2 billion operating loss the company suffered, which was almost double the loss it suffered a year ago. Intel’s restructuring and other expenses increased by more than $740 million during the period, and this was a key reason for the deterioration in the result.

To improve its financials, Intel is cutting its workforce by 15 percent and “implementing comprehensive cost reduction” as it seeks to save $10 billion in costs by 2025. The company also announced that it will suspend dividends.

Has Intel stock become a cheap buy?

Intel shares trade at a price-to-book multiple of less than 0.8, and the price-to-earnings multiple is also modest at 1.6. However, based on analyst estimates, the stock is trading at 34 times forward earnings, which is slightly higher given the average S&P 500 the stock trades at a multiple of 22.

Wall Street analysts have cut their price targets for the tech stock, but many of them are still higher than where it’s currently trading. The consensus analyst price target is nearly $33, which would imply an upside of more than 66% for investors buying the stock today. That doesn’t mean the stock is a sure bet to generate these kinds of gains, but it does help highlight how undervalued the stock can be in the near term (analyst price targets normally look at where the stock could go in the next 12 months. ).

Intel stock appears to be cheap, but the danger is that it could also end up being a value trap. The company is embarking on an ambitious turnaround strategy to renew its business and reduce costs. And with no clarity on how well it will do, investors should demand a large margin of safety with this stock and therefore should expect a discount.

Should you invest in Intel?

Intel stock can be a dangerous investment to hold in your portfolio. The company has a tough task ahead of it in trying to return to growth, build a strong foundry business, and do that while maintaining a profit. I’m not optimistic that it can do all of this without problems, which is why I’d hold off on buying Intel stock today.

The stock has the potential to be a good long-term buy for contrarian investors with a high risk tolerance, but you should be incredibly patient with it. Most investors are better off pursuing other growth stocks instead.