Qualcomm Inc (QCOM, Financial) experienced a daily loss of 5.84%, and a 3-month loss of 0.75% as of September 07, 2023. Despite these losses, the company reported a solid Earnings Per Share (EPS) (EPS) of 7.63. The question arises, is the stock modestly undervalued at its current price? This comprehensive analysis aims to answer that question and provide valuable insights into Qualcomm's valuation. Stay with us as we delve into the details.
Company Introduction
Qualcomm Inc (QCOM, Financial) is a global leader in wireless technology, designing chips for smartphones and licensing wireless technology. The company's key patents revolve around CDMA and OFDMA technologies, the backbone of all 3G, 4G, and 5G networks. Virtually all wireless device makers license Qualcomm's IP. The company 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.
With a market cap of $120.50 billion and sales of $38.60 billion, Qualcomm's stock price stands at $107.98, while its GF Value, an estimation of fair value, is $152.79. This comparison suggests that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
According to GuruFocus, Qualcomm (QCOM, Financial) appears to be modestly undervalued. The GF Value Line suggests that 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 Line, the stock may be undervalued and have higher future returns. Given Qualcomm's current price of $107.98 per share, it seems modestly undervalued.
As Qualcomm is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Assessing Qualcomm's Financial Strength
Before investing in a company, it's crucial to check its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. One way to assess financial strength is by looking at the cash-to-debt ratio and interest coverage. Qualcomm's cash-to-debt ratio of 0.56 is lower than 76.76% of 895 companies in the Semiconductors industry, indicating fair financial strength with a score of 7 out of 10.
Profitability and Growth
Companies with consistent profitability over the long term pose less risk. Qualcomm has been profitable 9 times over the past 10 years, with an operating margin of 28.77%, ranking better than 92.54% of 938 companies in the Semiconductors industry. Its profitability score is 9 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. Qualcomm's 3-year average annual revenue growth rate is 25%, ranking better than 77.4% of 863 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 24.9%, ranking better than 53.26% of 766 companies in the Semiconductors industry.
ROIC vs WACC
Another way to determine a company's profitability is by comparing its return on invested capital (ROIC) to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Qualcomm's ROIC is 27.25, and its WACC is 10.44.
Conclusion
In conclusion, Qualcomm (QCOM, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 53.26% of 766 companies in the Semiconductors industry. To learn more about Qualcomm stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.
