Strong Demand Revival Could Help Qualcomm Stock Regain Recent Highs

by Trefis Team
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Despite rising more than 2x from its low in March 2020, at the current price of $133 per share, we believe Qualcomm stock (NASDAQ: QCOM) has significant upside potential. Qualcomm stock has increased from $61 to $133 off its March 2020 bottom, more than the S&P which increased by around 80% from its lows. Further, the stock is up around 50% from the level it was at before the pandemic. However, we believe that Qualcomm stock could rise more than 25% to its early-2021 high of $168, driven by expectations of strong demand and stellar Q1 2021 results despite the pandemic. Our dashboard What Factors Drove 134% Change In Qualcomm Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The strong stock price rise since 2018-end came despite just 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). However, a 22% drop in the outstanding share count, led to revenue-per-share (RPS) rising by almost 35% to $20.73 in 2020 from $15.46 in 2018. Revenue on a trailing 12-month basis stands at $26.7 billion, which means that RPS stands at $23.48.

Further, Qualcomm’s P/S (price-to-sales) multiple rose from 3.7x in 2018 to 7.3x by 2020 end, but has since dropped to 6.4x. 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, as buying a new phone was just not a priority for people during the pandemic. However, sales have started rising since, and with the steady global roll-out of 5G, Qualcomm’s sales have jumped. This is evident from Qualcomm’s Q1 2021 results, where revenue came in at $8.2 billion, up from $5.1 billion in Q1 2020, driven primarily by rising chipset sales ($6.4 billion in Q1 ’21 vs $3.5 billion in Q1 ’20). Operating income jumped 2.5x from $1 billion to $2.5 billion over the same period, which helped EPS rise from $0.81 to $2.16, a jump of more than 2.5x.

Additionally, with the lockdowns being lifted and the further global 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 25% from current levels, to regain its recent highs of $168.

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