On September 21, 2023, Broadcom Inc (AVGO, Financial) closed at a price of $800.06 per share, marking a day's loss of -3.67% and a 3-month loss of -5.07%. With an Earnings Per Share (EPS) of 32.5, the question arises: is Broadcom's stock modestly overvalued? This article aims to provide an in-depth analysis of Broadcom's valuation, urging readers to delve into the comprehensive assessment that follows.
Company Introduction
Broadcom, the sixth-largest semiconductor company globally, has diversified into various software businesses, generating over $30 billion in annual revenue. It sells 17 core semiconductor product lines across wireless, networking, broadband, storage, and industrial markets. Notably, Apple is a major customer, accounting for approximately one fifth of Broadcom's sales. The company's current market cap is $330.20 billion, with its stock price at $800.06 per share, suggesting a modest overvaluation according to the GF Value.
Summarizing GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, GuruFocus' adjustment factor, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it may be overvalued, suggesting poor future returns. Conversely, if it is significantly below the GF Value Line, the stock could be undervalued, implying high future returns. At its current price, Broadcom (AVGO, Financial) appears to be modestly overvalued.
Financial Strength
Investors must carefully review a company's financial strength before deciding to buy shares. Broadcom's cash-to-debt ratio of 0.31 ranks worse than 84.62% of 904 companies in the Semiconductors industry, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, carries less risk. Broadcom has been profitable 9 years over the past 10 years, with revenues of $35.50 billion and Earnings Per Share (EPS) of $32.5 in the past 12 months. Its operating margin of 45.69% is better than 98.11% of 952 companies in the Semiconductors industry.
GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The 3-year average annual revenue growth rate of Broadcom is 13.3%, which ranks better than 53.33% of 872 companies in the Semiconductors industry.
ROIC vs WACC
If a company's return on invested capital (ROIC) exceeds its weighted average cost of capital (WACC), the company is likely creating value for its shareholders. Broadcom's ROIC is 25.6, while its WACC is 10.47, indicating a positive value creation.
Conclusion
Overall, Broadcom (AVGO, Financial) stock is believed to be modestly overvalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 55.1% of 775 companies in the Semiconductors industry. To learn more about Broadcom stock, you can check out its 30-Year Financials here.
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