Despite a daily loss of 1.72%, Qualcomm Inc (QCOM, Financial) has seen a 3-month gain of 10.47% and a robust Earnings Per Share (EPS) of 7.63. This article explores whether Qualcomm (QCOM) is modestly undervalued and provides a comprehensive valuation analysis. Let's delve into the details.
Company Overview
Qualcomm develops and licenses wireless technology and designs chips for smartphones. The company's key patents revolve around CDMA and OFDMA technologies, which are standards in wireless communications that are the backbone of all 3G, 4G, and 5G networks. Qualcomm's IP is licensed by virtually all wireless device makers. The firm is also the world's largest wireless chip vendor, supplying nearly every premier handset maker with leading-edge processors. Qualcomm also sells RF-front end modules into smartphones, as well as chips into automotive and Internet of Things markets.
The company's current stock price is $119.41, with a market cap of $133.30 billion. However, the GF Value, an estimate of fair value, is $162. This discrepancy suggests that Qualcomm may be modestly undervalued. The income breakdown of Qualcomm is shown below:
The GF Value of Qualcomm (QCOM, Financial)
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should be traded at.
The current GF Value of Qualcomm (QCOM, Financial) suggests that the stock is modestly undervalued. The stock price is likely to fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is 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.
Because Qualcomm is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth. For potential investments with higher future returns at reduced risk, check out these companies.
Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before purchasing shares. Qualcomm has a cash-to-debt ratio of 0.56, which ranks below 75.92% of companies in the Semiconductors industry. The overall financial strength of Qualcomm is 7 out of 10, indicating fair financial strength.
The debt and cash of Qualcomm over the past years is shown below:
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Qualcomm has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $38.60 billion and Earnings Per Share (EPS) of $7.63. Its operating margin is 28.77%, which ranks better than 91.76% of companies in the Semiconductors industry. Overall, the profitability of Qualcomm is ranked 9 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth rate of Qualcomm is 25%, which ranks better than 77.51% of companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 24.9%, which ranks better than 52.73% of companies in the Semiconductors industry.
Return on Invested Capital vs Weighted Cost of Capital
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Qualcomm's ROIC is 27.25, and its WACC is 10.27.
The historical ROIC vs WACC comparison of Qualcomm is shown below:
Conclusion
In conclusion, the stock of Qualcomm (QCOM, Financial) gives every indication of being modestly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 52.73% of companies in the Semiconductors industry. To learn more about Qualcomm stock, you can check out its 30-Year Financials here.
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