It's been a great afternoon session for QUALCOMM investors, who saw their shares rise 1.9% to a price of $125.25 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
A Very Low P/E Ratio but Trades Above Its Graham Number:
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, QUALCOMM has a trailing 12 month P/E ratio of 13.4 and a P/B ratio of 7.08.
When we divide QUALCOMM's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.43. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Growing Revenues With Increasing Reinvestment in the Business:
| 2019-09-30 | 2020-09-30 | 2021-09-30 | 2022-09-30 | |
|---|---|---|---|---|
| Revenue (MM) | $24,273 | $23,531 | $33,566 | $44,200 |
| Gross Margins | 64.6% | 60.7% | 57.5% | 57.8% |
| Operating Margins | 31.6% | 26.6% | 29.2% | 35.9% |
| Net Margins | 18.07% | 22.09% | 26.94% | 29.27% |
| Net Income (MM) | $4,386 | $5,198 | $9,043 | $12,936 |
| Net Interest Expense (MM) | -$627 | -$602 | -$559 | -$399 |
| Depreciation & Amort. (MM) | -$1,401 | -$1,393 | -$1,582 | -$1,762 |
| Earnings Per Share | $3.59 | $4.52 | $7.87 | $9.38 |
| EPS Growth | n/a | 25.91% | 74.12% | 19.19% |
| Diluted Shares (MM) | 1,220 | 1,149 | 1,149 | 1,114 |
| Free Cash Flow (MM) | $6,399 | $4,407 | $8,648 | $6,834 |
| Capital Expenditures (MM) | -$887 | -$1,407 | -$1,888 | -$2,262 |
| Net Current Assets (MM) | -$11,283 | -$10,998 | -$11,215 | -$10,277 |
| Current Ratio | 1.88 | 2.14 | 1.68 | 1.75 |
| Long Term Debt (MM) | $13,437 | $15,226 | $13,701 | $13,537 |
| Net Debt / EBITDA | 0.43 | 1.17 | 0.7 | 0.74 |
QUALCOMM has growing revenues and increasing reinvestment in the business, strong margins with a stable trend, and exceptional EPS growth. The company also benefits from low leverage, wider gross margins than its peer group, and consistent free cash flow. Furthermore, QUALCOMM has a decent current ratio.
