Is Qorvo Stock’s Rally Coming To An End?

by Trefis Team
Rate   |   votes   |   Share

After a 1.8x rise since its low in March, at the current price of around $125 per share, we believe Qorvo Inc. stock (NASDAQ: QRVO) could see significant downside. The stock has recovered to a level higher than where it was before the drop in March, but in reality, demand and revenues will likely be negatively affected this year. Qorvo stock has already rallied from $69 to around $125 off the recent bottom compared to the S&P 500 which moved 45%.

Qorvo stock is up about 106% from levels seen at the end of 2018, over 1.5 years ago. This rise came due to a 9% rise in revenue, which combined with an 8% decrease in the outstanding share count, translated into an 18% rise in revenue per share (RPS).

Further, its P/S multiple jumped from 2.6x in 2018 to 4.7x in 2019, as investor expectations rose as a result of the company’s improved profitability. A drop in operating expenses saw EPS rise from -$0.32 in 2018 to $2.86 in 2020. However, the P/S multiple has dropped to 4.5x so far this year, and we believe the stock could see further downside, owing to the potential weakness from a recession driven by the Covid outbreak. Our interactive dashboard What Factors Drove 105% Change in Qorvo, Inc. Stock between 2018 and now? has the underlying numbers.

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

The global spread of Coronavirus and the resulting lockdowns has meant there is expected to be a rise in broadband and wireless communication and this could benefit the company, as is evident from Qorvo’s Q1 ’21 earnings, where revenue came in at $787 million vs $775 million for the same period last year. Lower COGS and operating expenses meant that EPS stood at $0.85, more than 2.5x higher than the $0.33 in Q1 2020. 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 Q2 ’21 results in October will paint a clearer picture with respect to the impact of this delay on the company’s profitability, but we expect it to hamper the company’s revenue growth in the near future.

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 4.5x to around 4x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to as low as $110.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

 

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

Comments

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