Is Qualcomm A Buy After Sales Rise 73%?
Back in August I showed you 3 Reasons To Buy Qualcomm stock to earn higher investment returns… When its stock gets cheaper.
Today, I answer – Is Qualcomm A Buy After Sales Rise 73%? You can read the full article above.
But if you don’t want to; here’s a quick recap of the last article on Qualcomm.
Qualcomm’s 2.4% Dividend
Over the last decade Qualcomm’s paid out a total of $14.22 per share in dividends.
At today’s share count of 1.165 billion shares that’s equal to $16.6 billion paid out to shareholders in the last decade.
Plus, in the last decade it grew its dividend 249% from $0.72 per share in 2010 to $2.51 per share now. This is an annual dividend growth rate on average of 24.9% per year.
These dividend payments will provide you a solid retirement income in normal times if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
It can do this because it earns huge profits and cash flows. Which is reason #2 to buy Qualcomm.
Qualcomm Earns High Profits
Over the last decade it earned an average operating income margin of 24.8% per year.
I look for anything above 10% on a consistent basis so Qualcomm surpasses this number.
This makes Qualcomm a great operating business.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 24.2% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.
Qualcomm surpasses my thresholds on both important metrics and that makes it an incredibly safe investment.
These profits also allow it to continually reinvest in operations. And to pay you a large and growing dividend as well.
But these profits also allow another layer of safety because Qualcomm’s business should be largely protected from negative effects of the coronavirus… Which is reason #3.
The Coronavirus Won’t Harm Qualcomm
People may stop paying their mortgages.
They may stop paying their credit cards.
They may stop paying their vehicle loans.
And they may stop paying their student loans.
Because of the mass unemployment caused economic issues we’re now dealing with; people may stop paying these things if they need to.
But businesses and individuals won’t stop using smart phones or the internet.
Especially with more people working from home than ever before… And this likely to continue for the foreseeable future with the pandemic still raging in the US and worldwide.
Another factor that will help Qualcomm survive and thrive during this pandemic is the 5G build out.
This network is being built out worldwide right now and once operational in your area will bring you faster, more reliable, and more stable internet.
Requirements for working at home or taking classes online like we’re seeing today.
And this trend won’t just last for however long this pandemic lasts.
The 5G build out will last 1o to 20 years or more…
We’re still in the infancy of this. And as one of the major leaders in 5G technology Qualcomm and its shareholders will be one of the largest beneficiaries.
These things combined give enormous stability to the company in these highly uncertain times. And it also means you should expect Qualcomm to continue earning enormous profits and cash flows.
But what about its valuation? Is it cheap?
Qualcomm Is Not Cheap
This is the 1 reason to avoid Qualcomm stock for the time being…
With the markets at or near all-time highs you’d expect a fantastic stock like Qualcomm to be selling at an enormous valuation.
And it is.
As of this writing its P/E is 45.9.
Its P/CF is 23.9.
And its forward P/E is 18.9
On all three metrics I look to buy investments below 20 to consider them undervalued.
This shows that Qualcomm is currently overvalued… By a wide margin.
This means Qualcomm stock does not offer you a margin of safety in investing terminology.
A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.
Because of Qualcomm’s overvaluation there is a lack of a margin of safety here which makes the investment riskier.
If you’re looking for a solid, safe, stable, dividend paying, and enormously profitable investment to protect your investment portfolio – consider investing in Qualcomm… But only when its stock is cheaper.
This thesis to buy Qualcomm – when its cheaper – continued to play out after it released its most up to date quarterly earnings on November 4th, 2020.
Sales rose 73% in the year-to-year quarterly period to $8.4 billion.
Net income rose 500% in the year-to-year quarterly period to $3 billion.
And earnings per share rose 514% in the year-to-year quarterly period to $2.58 per share.
Net income even rose in the full year 2020 by 19% to $5.2 billion compared to $4.4 billion in 2019.
These results happened during the worst economic crisis most of us have ever seen which makes them even more impressive.
This illustrates many of the reasons I told you to buy its stock back in August…
But this great news has also caused the share price of Qualcomm to continue rising…
From August when I last wrote you about Qualcomm to today, its stocks gone up from $106.36 per share to $150.80 per share as of this writing. Or a 41.8% increase in 3 months.
Which means its even more overvalued now than it was back in August.
As of this writing its P/E is 32.6.
Its P/CF is 29.1.
And its forward P/E is 27.4.
For these reasons of its continued high valuation leading to more risk owning its stock and lower future return potential, continue avoiding its stock for now.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above