Understanding Broadcom (AVGO) – Key Points for Investors

It's been a great afternoon session for Broadcom investors, who saw their shares rise 2.5% to a price of $1134.03 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.

Broadcom's Valuation Is in Line With Its Sector Averages:

Broadcom Inc. designs, develops, and supplies various semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 35.0 and an average price to book (P/B) ratio of 7.92. In contrast, Broadcom has a trailing 12 month P/E ratio of 34.4 and a P/B ratio of 19.15.

Broadcom's PEG ratio is 1.72, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

The Company Has a Highly Leveraged Balance Sheet:

2018 2019 2020 2021 2022 2023
Revenue (MM) $20,848 $22,597 $23,888 $27,450 $33,203 $35,454
Revenue Growth n/a 8.39% 5.71% 14.91% 20.96% 6.78%
Operating Margins 25% 15% 17% 31% 43% 45%
Net Margins 61% 12% 12% 25% 35% 39%
Net Income (MM) $12,629 $2,736 $2,961 $6,736 $11,495 $13,917
Net Interest Expense (MM) $628 $1,444 $1,777 $1,885 $1,737 $1,623
Depreciation & Amort. (MM) $515 $569 $570 $539 $529 $507
Earnings Per Share $28.44 $6.43 $6.33 $15.0 $26.53 $32.550000000000004
EPS Growth n/a -77.39% -1.56% 136.97% 76.87% 22.69%
Free Cash Flow (MM) $8,245 $9,265 $11,598 $13,321 $16,312 $17,371
Capital Expenditures (MM) $635 $432 $463 $443 $424 $469
Current Ratio 3.9 1.44 1.87 2.64 2.62 2.5
Total Debt (MM) $17,493 $30,491 $41,062 $41,499 $39,515 $39,341
Net Debt / EBITDA 2.34 6.34 7.3 3.24 1.84 1.66
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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