Worth Buying Qualcomm Stock At $91?

by Trefis Team
Rate   |   votes   |   Share

Qualcomm stock (NASDAQ: QCOM) is up just 5% since the beginning of this year, and at the current price of around $91 per share, we believe Qualcomm stock has a significant downside.

Why is that? Our belief stems from the fact that Qualcomm stock remains about 56% higher than the low seen at the end of 2017. Our dashboard What Factors Drove 56% Change In Qualcomm Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Qualcomm is primarily a mobile chipset manufacturer and a market leader in wireless technology, providing solutions to all major smartphone manufacturers. Qualcomm’s stock rise over the past two years followed on from a 9% growth in revenue, which combined with an 18% drop in the outstanding share count, led to a 33% rise in revenue on a per share basis (RPS).

Finally, Qualcomm’s Price-to-Sales (P/S) ratio rose from 3.9x at the end of 2017 to 4.3x at the end of 2019. While its P/S has risen to 4.6x this year, given the volatility of the current situation, there is significant possible downside for Qualcomm’s current multiple, especially when compared with previous years: 3.5x at the end of 2018, and 4.3x as recently as 2019.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus has meant there is a drop in demand for smartphones right now, with new phones just not a priority for people at the moment. Further, the delay in the global launch of 5G could also prove to be a temporary setback for Qualcomm. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe Qualcomm’s Q3 results later this week will confirm the hit to its revenue. It is also likely to accompany a lower Q4 as-well-as 2020 guidance.

Regardless, if there isn’t clear evidence of containment of the virus anytime soon, we believe the stock will see its P/S decline from the current level of 4.6x to around 4x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $82.

To find out how Qualcomm’s chipset peer AMD has performed over the same time period, view our interactive dashboard, What Factors Drove 575% Change in Advanced Micro Devices Stock between 2017 and now?.


See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!