Could The Current Crisis Drag Qorvo Inc.’s Stock To $80?

by Trefis Team
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Despite a 55% rise since the March low of this year, at the current price of around $107 per share we believe Qorvo Inc. stock (NASDAQ: QRVO) has reached its near term potential, and could see downside from current levels. Qorvo Inc., a wireless and broadband semiconductor manufacturer, has seen its stock rally from $69 to $107 off its recent bottom compared to the S&P which moved 34%. On the way down, QRVO stock had taken a beating of around 37% going from $109 to $69, a rate slightly higher than the S&P 500, which fell by about 34%. Further, the stock is still up around 77% from its early 2019 levels, over a year ago.

QRVO stock has almost fully recovered to the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. This seems to make it fully valued as, in reality, demand and revenues will likely be lower than last year.

QRVO’s rise over the last 2 years was helped by a 9% increase in revenue, which combined with an 8% decrease in outstanding share count, translated into an 18% rise in revenue per share. Further, the company has seen a jump in profitability, with EPS over this period going from -$0.32 in 2018 to $2.86 in 2020 (Qorvo Inc.’s fiscal year ends in March). EPS has risen dramatically over the past 2 years, due to a gradual drop in operating expenses (operating margins went from 2.36% in 2018 to 13% in 2020).

While the company has seen revenue rise 9% over recent years, its P/S multiple has grown 50% from 2.6x in 2018 to 3.9x currently. Further, we believe the stock is unlikely to see significant upside despite the recent rally, owing to the potential weakness from a recession driven by the Covid outbreak. Our interactive dashboard What Factors Drove 76% Change in Qorvo Inc. Stock between 2018 and now? has the underlying numbers.

Qorvo Inc.’s P/S multiple was at 2.6x in 2018, and currently stands at 3.9x. However, there is further downside when we consider the current scenario and how it could impact the company’s business, and when we compare this with P/S levels in previous years: 2.3x in 2016 and 2.6x as recently as 2018.

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

The global spread of Coronavirus and the resulting lock downs has meant there is expected to be a rise in broadband and wireless communication and this could benefit the company. However, the current crisis has led to a further delay in the global roll-out of 5G communication. The roll-out of 5G was expected to boost the company’s revenues. We believe Qorvo Inc.’s Q1 ’21 results in July will paint a clearer picture with respect to the impact of this delay on the company’s profitability.

Regardless, if there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/S decline from the current level of 3.9x to around 3x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $80.

While QRVO stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here


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