We think that ViaSat Inc. (NASDAQ:VSAT) currently is a better bet compared to Qorvo Inc. (NASDAQ:QRVO). VSAT stock trades at 1.3x trailing revenues, much lower than that of QRVO, whose P/S multiple stands at 3.3x. Does this gap in the companies’ valuations make sense? We don’t think so and we only expect ViaSat to narrow this gap. While both companies weren’t significantly hampered by the pandemic and have seen roughly similar growth over the past few years, ViaSat has posted more consistent sales growth. Both ViaSat and Qorvo are communications technology companies and have seen around 1.5x sales growth since FY ’17 (Both companies’ fiscal years end in March). ViaSat has seen sales rise from $1.6 billion in FY ’17 to $2.5 billion on an LTM basis, while Qorvo has seen sales grow from $3 billion to $4.5 billion over the same period, a growth in line with that of ViaSat. For details about ViaSat’s revenues and comparison to peers, see ViaSat (VSAT) Revenue Comparison.
Having said that, we dive deeper into the comparison, which makes ViaSat a better bet than Qorvo, especially at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at detailed historical revenue growth as well as operating income growth and financial position, combined with expected returns. Our dashboard ViaSat vs Qorvo: Industry Competitors, But ViaSat Is A Better Bet has more details on this. Parts of the analysis are summarized below.
1. ViaSat Has Shown More Consistent Sales Growth
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Both companies have seen around 1.5x growth in sales since FY ’17, with ViaSat’s revenues rising from $1.6 billion in FY ’17 to $2.5 billion on an LTM basis, while Qorvo saw sales rise from $3 billion to $4.5 billion over this period. Having said that, ViaSat has seen more consistent sales growth over this period, while Qorvo’s sales hovered between $3-$3.2 billion between FY ’17 and FY ’20, before finally jumping to $4 billion in FY ’21.
Accordingly, ViaSat’s pre-Covid annual sales growth stands at almost 15%, much higher than Qorvo’s 1.5%, while growth during Covid also stands higher at 11.7%, compared to Qorvo’s 4.8%.
2. EBIT margins And Financial Position: Qorvo Is Ahead
ViaSat’s P/EBIT ratio stands at around 45x currently, much higher than that of Qorvo’s 12x. However, Qorvo’s LTM EBIT margins currently stand at 27.6%, much higher than ViaSat’s 3%, and Qorvo is ahead in terms of LTM margin change compared to the last three fiscal years too, with 13.3% growth vs ViaSat’s 2.5%.
Additionally, Qorvo’s debt as a % of equity stands at 22.9% currently, lower than ViaSat’s 35.2%. Further, Qorvo is ahead in terms of cash as a % of assets, too, with 15.2%, higher than ViaSat’s 3.6%.
For additional details about Qorvo’s historical returns and comparison to peers, see Qorvo (QRVO) Stock Return.
3. However, ViaSat Is Ahead In Terms Of Expected Returns
Using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe ViaSat is currently the better choice. ViaSat’s LTM revenues of $2.5 billion are expected to rise at a CAGR of around 10.9% as per our estimates, taking revenue numbers three years out to as high as $3.5 billion. Assuming ViaSat’s P/S ratio to rise marginally to 1.5x, this means that the market cap would rise to $5 billion, an upside of more than 30% over three years.
In comparison, given historical trends, we expect Qorvo’s sales to rise slower at a CAGR of 5.8%, taking revenue in three years to $5.4 billion. However, considering the P/S for Qorvo to come in at roughly the same level as now, we estimate the market cap to rise 18% to $18 billion over this period.
The Net of It All
While Qorvo’s sales are at a level higher than ViaSat’s, the latter has witnessed more consistent revenue growth over the years and has also posted a better performance during the recent period. While Qorvo’s margins currently stand higher, we expect ViaSat’s sales growth consistently to translate into a better margin performance in the near future and expect ViaSat to close the gap in valuation between the two companies. As such, we believe that ViaSat stock is currently a better bet compared to Qorvo stock.
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