With a daily gain of 2.36% and Earnings Per Share (EPS) standing at 7.63, Qualcomm Inc (QCOM, Financial) presents an intriguing case for value investors. The question that arises is: Is the stock modestly undervalued? This article delves into a comprehensive analysis of Qualcomm's valuation. We encourage you to read on for a deeper understanding.
Company Overview
Qualcomm Inc (QCOM, Financial) is a leading player in the development and licensing of wireless technology and chip design for smartphones. The company's key patents revolve around CDMA and OFDMA technologies, which form the backbone of all 3G, 4G, and 5G networks. Qualcomm's IP is licensed by virtually all wireless device makers, making it a significant player in the industry. With a current stock price of $121.5 and a GF Value of $162, Qualcomm appears to be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that indicates the intrinsic value of a stock. It takes into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line gives an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
For Qualcomm (QCOM, Financial), the GF Value suggests that the stock is modestly undervalued. The current price of $121.5 per share is lower than the estimated fair value of $162 per share. This suggests that Qualcomm's long-term stock return is likely to be higher than its business growth.
Financial Strength
Examining a company's financial strength is crucial to avoid the risk of permanent capital loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Qualcomm's cash-to-debt ratio of 0.56 ranks lower than 75.95% of companies in the Semiconductors industry, suggesting fair financial strength with a rating of 7 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Qualcomm has been profitable 9 out of the past 10 years, with an operating margin of 28.77%, ranking better than 91.76% of companies in the Semiconductors industry. This suggests strong profitability.
Furthermore, long-term stock performance is closely correlated with growth. Qualcomm's average annual revenue growth is 25%, which ranks better than 77.53% of companies in the Semiconductors industry. The 3-year average EBITDA growth is 24.9%, ranking better than 52.73% of companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining profitability. A higher ROIC than WACC implies the company is creating value for shareholders. Qualcomm's ROIC for the past 12 months is 27.25, and its WACC is 10.57, indicating value creation.
Conclusion
In conclusion, Qualcomm (QCOM, Financial) stock appears to be modestly undervalued. The company exhibits fair financial strength, strong profitability, and above-average growth in the Semiconductors industry. To learn more about Qualcomm stock, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
