With a daily gain of 2.12% and a three-month gain of 22.47%, Broadcom Inc (AVGO, Financial) is a stock that has attracted significant attention. The company reported an Earnings Per Share (EPS) of 31.89. However, the question remains: is the stock modestly overvalued? This article aims to provide a comprehensive valuation analysis of Broadcom (AVGO) to answer this question. Keep reading to gain insights into Broadcom's financial strength, profitability, and growth prospects.
A Snapshot of Broadcom Inc (AVGO, Financial)
Broadcom, the sixth-largest semiconductor company worldwide, has expanded into various software businesses, generating over $30 billion in annual revenue. The company sells 17 core semiconductor product lines across wireless, networking, broadband, storage, and industrial markets. Furthermore, Broadcom has a significant customer base, including Apple, which accounts for roughly one-fifth of its sales. The company is primarily a fabless designer but maintains some in-house manufacturing, such as its best-of-breed FBAR filters that sell into the iPhone.
Broadcom's income breakdown: 
Understanding the GF Value
The GF Value is a proprietary measure that estimates the current intrinsic value of a stock. This valuation method is based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value, Broadcom (AVGO, Financial) appears to be modestly overvalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $843.39 per share, Broadcom stock appears to be modestly overvalued.
Because Broadcom is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength of Broadcom (AVGO, Financial)
Investing in companies with robust financial strength reduces the risk of permanent loss. The financial strength of a company can be evaluated by looking at its cash-to-debt ratio and interest coverage. Broadcom has a cash-to-debt ratio of 0.29, which is worse than 84.74% of 865 companies in the Semiconductors industry. Overall, the financial strength of Broadcom is 6 out of 10, indicating fair financial health.
Debt and cash of Broadcom over the past years: 
Profitability and Growth of Broadcom (AVGO, Financial)
Investing in profitable companies carries less risk, especially if the company has demonstrated consistent profitability over the long term. Broadcom has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $35 billion and Earnings Per Share (EPS) of $31.89. Its operating margin of 45.3% is better than 97.54% of 936 companies in the Semiconductors industry. Overall, GuruFocus ranks Broadcom's profitability as strong.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Broadcom is 13.3%, which ranks better than 53.41% of 865 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 26%, which ranks better than 54.56% of 768 companies in the Semiconductors industry.
ROIC vs WACC
A company's profitability can also be evaluated by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Broadcom's ROIC is 24.78 while its WACC came in at 10.37.
The historical ROIC vs WACC comparison of Broadcom is shown below: 
Conclusion
In conclusion, Broadcom (AVGO, Financial) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 54.56% of 768 companies in the Semiconductors industry. To learn more about Broadcom stock, you can check out its 30-Year Financials here.
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