Qualcomm Stock: A Bargain Buy?

by Trefis Team
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Despite already rising 2x from its low in March 2020, at the current price of $123 per share, we believe Qualcomm stock (NASDAQ: QCOM) has further upside potential. Qualcomm stock has increased from $61 to $123 off the 2020 bottom, more than the S&P which increased by around 70% from its lows. Further, the stock is up just around 40% from the level it was at before the pandemic. However, we believe that Qualcomm stock could rise more than 30% to its early-2021 high of $168, driven by expectations of strong demand and strong Q1 2021 results despite the pandemic. Our dashboard What Factors Drove 117% Change In Qualcomm Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The stock price rise since 2018-end came due to a 4% rise in revenue from $22.6 billion in FY 2018 to $23.5 billion in FY 2020 (Qualcomm’s fiscal year ends in September). Further, a 22% drop in the outstanding share count, led to revenue-per-share (RPS) rising by more than a third to $20.73 in 2020 from $15.46 in 2018.

Qualcomm’s P/S (price-to-sales) multiple rose from 3.7x in 2018 to 4.4x by 2019 end, and has since jumped to 5.9x, riding the rally in technology stocks. We believe that the company’s P/S ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus saw a drop in demand for smartphones, with buying a new phone not a priority for people during the pandemic. However, sales have since started rising and with the steady global roll-out of 5G, Qualcomm’s sales have rocketed. This is evident from Qualcomm’s Q1 2021 results, where revenue came in at $8.2 billion, up from $5.1 billion in Q2 2021. Operating income jumped 2.5x from $1 billion to $2.5 billion over the same period. This helped EPS rise from $0.81 to $2.16, a jump of almost 3x.

Additionally, with the lockdowns being lifted and the further roll-out of 5G, we believe the company will continue seeing strong revenue and margin growth in the medium term. These factors will raise investor expectations further, driving up the company’s P/S multiple. We believe that Qualcomm stock can rise more than 30% from current levels, to regain its recent highs of $168.

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