Qualcomm 5G, logo on display at the Mobile World Congress, on February 26, 2019 in Barcelona, … [+] Spain. (Photo by Joan Cros / NurPhoto via Getty Images)
NurPhoto via Getty Images
Despite rising more than 2x from its March 2020 low, at the current price of $ 133 per share, we think Qualcomm stock (NASDAQ: QCOM) has significant upside potential. Qualcomm’s shares are up from $ 61 to $ 133 from its March 2020 low, more than the S&P, which was up about 80% from its low. Furthermore, the stock is up about 50% from pre-pandemic levels. However, we believe that Qualcomm stock could rise by more than 25% to its early 2021 high of $ 168, driven by expectations of strong demand and excellent results for the first quarter of 2021 despite the pandemic. Our dashboard What factors caused a 134% change in Qualcomm shares between 2018 and now? has the underlying numbers behind our thinking.
The strong price increase since the end of 2018 came despite a revenue increase of only 4% from $ 22.6 billion in FY 2018 to $ 23.5 billion in FY 2020 (Qualcomm’s fiscal year ends in September). However, a 22% decline in the number of shares outstanding resulted in sales per share increasing by nearly 35% to $ 20.73 in 2020, compared to $ 15.46 in 2018. Sales on a lagging 12-month basis amount to $ 26.7 billion which means the RPS stands at $ 23.48.
Furthermore, Qualcomm’s P / S (price-to-sale) multiple increased from 3.7x in 2018 to 7.3x by the end of 2020, but has since fallen to 6.4x. We believe that the company’s P / S ratio has the potential to rise further in the near term based on expectations of continued demand growth and a favorable shareholder return policy, driving the stock price higher.
Where does the stock go?
The global spread of the coronavirus reduced demand for smartphones as buying a new phone during the pandemic was simply not a priority for people. Since then, however, sales have soared, and with the steady global rollout of 5G, Qualcomm’s sales have soared. This is evidenced by Qualcomm’s results in the first quarter of 2021, where sales were $ 8.2 billion, compared to $ 5.1 billion in the first quarter of 2020, driven primarily by rising chipset sales ($ 6.4 billion in Q1 ’21 vs $ 3.5 billion in Q1 ’20). Operating income rose 2.5 times from $ 1 billion to $ 2.5 billion over the same period, pushing earnings per share from $ 0.81 to $ 2.16, a jump more than 2.5 times.
In addition, with the lockdowns lifted and the continued global rollout of 5G, we believe the company will continue to see strong revenue and margin growth over the medium term. These factors will further increase investor expectations, driving up the company’s P / S multiple. We believe Qualcomm’s stock could rally more than 25% from current levels to regain the recent highs of $ 168.
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