Qualcomm Stock: Buy For 30% Gains

by Trefis Team
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Despite jumping 2x from its low in March 2020, at the current price of $131 per share, we believe Qualcomm stock (NASDAQ: QCOM) has strong upside potential. Qualcomm stock has risen from $61 to $131 off its March 2020 low, more than the S&P which increased by around 80% from its lows. Further, the stock is up almost 50% from the level it was at before the pandemic. However, we believe that Qualcomm stock could rise almost 30% to its early-2021 high of $168, driven by expectations of steady demand growth and strong Q2 2021 results despite the pandemic. Our dashboard What Factors Drove 131% Change In Qualcomm Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The 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 34% to $20.73 in 2020 from $15.46 in 2018.

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 6.3x. 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 new phones was just not a priority for people during the pandemic. However, sales have since recovered, and with the rapid global roll-out of 5G, Qualcomm’s sales have jumped. This is evident from Qualcomm’s Q2 2021 results, where revenue came in at $7.9 billion, up from $5.2 billion in Q2 2020, driven primarily by a 55% rise in chipset sales ($6.2 billion in Q2 ’21 vs $4.1 billion in Q2 ’20). Operating income jumped 2.2x from $991 million to $2.17 billion over the same period, which helped EPS rise from $0.41 to $1.53, an increase of more than 3x.

Additionally, with the lockdowns being lifted and the continued roll-out of 5G, we believe the company stands to benefit further 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 nearly 30% from current levels, to regain its recent highs of $168.

While Qualcomm stock may be undervalued, it is helpful to know how its peers stack up. Qualcomm Stock Comparison With Peers summarizes how Qualcomm compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.


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