Qorvo has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 8.2% to $92.50 per share while the index has gained 6.8%.
Is now the time to buy Qorvo, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Qorvo Will Underperform?
We don’t have much confidence in Qorvo. Here are three reasons you should be careful with QRVO, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Qorvo’s demand was weak over the last five years as its sales fell at a 1.7% annual rate. This wasn’t a great result and is a sign of poor business quality. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
2. Revenue Projections Show Stormy Skies Ahead
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 Qorvo’s revenue to drop by 5.7%, a decrease from its 1.7% annualized declines for the past five years. This projection doesn’t excite us and indicates its products and services will face some demand challenges.
3. Shrinking Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Analyzing the trend in its profitability, Qorvo’s operating margin decreased by 15.2 percentage points over the last five years. Qorvo’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was 11.2%.
Final Judgment
Qorvo falls short of our quality standards. That said, the stock currently trades at 13.8× forward P/E (or $92.50 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of Qorvo
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