Introduction
As of July 21, 2023, Qualcomm Inc (QCOM, Financial) shares are experiencing a positive surge, with a day's gain of 3.31%. Currently priced at $124.72, the company boasts a market cap of $138.9 billion and an earnings per share of $9.32. According to GuruFocus, the GF Value of Qualcomm is estimated at $168.65, indicating that the stock is modestly undervalued.
Qualcomm, a pioneer in wireless technology and chip design for smartphones, holds key patents around CDMA and OFDMA technologies. These technologies form the backbone of all 3G, 4G, and 5G networks. The company's intellectual property is licensed by virtually all wireless device manufacturers. In addition, Qualcomm is the world's largest wireless chip vendor, supplying nearly every premier handset maker with advanced processors.
GF Value: Qualcomm's Intrinsic Worth
The GF Value is a unique valuation model that GuruFocus uses to estimate the intrinsic value of a stock. It takes into account historical trading multiples, an adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded. Given Qualcomm's current price of $124.72 per share and its GF Value, the stock appears to be modestly undervalued.
With Qualcomm's valuation being lower than its intrinsic worth, the long-term return of its stock is likely to be higher than its business growth rate.
Qualcomm's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Therefore, it's crucial to examine a company's financial strength before investing. Qualcomm's cash-to-debt ratio stands at 0.42, which is lower than 80.82% of companies in the Semiconductors industry. Overall, Qualcomm's financial strength is rated 7 out of 10 by GuruFocus, indicating fair financial health.
Profitability Analysis
Qualcomm has been consistently profitable over the past decade, offering less risk for investors. The company reported revenue of $41.1 billion and earnings per share of $9.32 over the past twelve months. Its operating margin is 30.91%, which ranks better than 93.06% of companies in the Semiconductors industry. Overall, Qualcomm's profitability is ranked 9 out of 10, indicating strong profitability.
Growth Prospects
Growth is a critical factor in a company's valuation. Qualcomm's 3-year average annual revenue growth is 25%, ranking better than 77.79% of companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 24.9%, placing it above 52.92% of companies in the industry.
ROIC vs WACC
Comparing a company’s return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insight into its profitability. Qualcomm’s ROIC over the past 12 months is 31.4%, while its WACC is 10.29%. This suggests that the company is creating value for its shareholders as the return on invested capital exceeds the weighted average cost of capital.
Conclusion
In conclusion, Qualcomm (QCOM, Financial) appears to be modestly undervalued. With fair financial strength and strong profitability, it presents an attractive investment opportunity. Its growth ranks better than 52.92% of companies in the Semiconductors industry. To delve deeper into Qualcomm's financials, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
