Qualcomm has been treading water for the past six months, recording a small loss of 1.6% while holding steady at $156.
Is now the time to buy QCOM? Find out in our full research report, it’s free.
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. Long-Term Revenue Growth 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 many enduring ones grow for years. Over the last five years, Qualcomm grew its sales at a solid 11.2% compounded annual growth rate. Its growth surpassed 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. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Qualcomm has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 30.5% over the last two years.
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 2.5%, close to its 11.2% annualized growth for the past five years. This projection is underwhelming and implies its newer products and services will not lead to better top-line performance yet. At least the company is tracking well in other measures of financial health.
Final Judgment
Qualcomm has huge potential even though it has some open questions, but at $156 per share (or 13.2× forward P/E), is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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