Qualcomm trades at $171.30 per share and has stayed right on track with the overall market, gaining 5.5% over the last six months. At the same time, the S&P 500 has returned 9.9%.
Is now the time to buy QCOM? Find out in our full research report, it’s free for active Edge members.
Why Does QCOM Stock Spark Debate?
Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Qualcomm’s sales grew at an impressive 15.3% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
2. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Qualcomm’s five-year average ROIC was 47%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
One Reason to be Careful:
Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Qualcomm’s revenue to rise by 3%, a deceleration versus its 15.3% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
Final Judgment
Qualcomm’s merits more than compensate for its flaws, but at $171.30 per share (or 14.2× forward P/E), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
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