Qualcomm Inc. (Ticker: QCOM) - Brief Breakdown
In my Brief Breakdowns,I pick a stock and present opposite sides – I present the bullish argument and the bearish argument.
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Company Description and Qualitative Analysis
Qualcomm Incorporated creates semiconductors, software, and services related to wireless technology. It develops and supplies integrated circuits and owns the patents which are critical to the 5G, 4G, CDMA2000, TD-SCDMA and WCDMA mobile communications standards. These patents are critical for wireless voice and data communications, networking, application processing, multimedia, and global positioning system products. Qualcomm is a semiconductor giant and is positioned to rapidly expand as more smart devices will require chips in order to obtain 5G service. Every cellphone will require 5G going forward to remain competitive and the patent to the semiconductor chip that allows 5G will be ever so valuable.
Quantitative Analysis
At the time of this writing (4/4/2022), QCOM is trading at $146.99 with a 52 week range of $122.17 - $193.58 and a market cap of $165.66B. In Q1 of 2022, GAAP revenue was $10,705 million up 30% year-over-year (YoY). Earnings before taxes (EBT) was $3,865 million up 48% YoY, net income was also up significantly up 38% to $3,399 million. Diluted earnings per share (EPS) was $2.98 up 41% YoY. Return of equity (ROE: Net Income / Total Equity *100) of QCOM is 108.3% and net margin (net income / revenue) is 27.71%. The price to earnings (price per share / earnings per share) ratio was 16.85 and the debt to equities ratio (total liabilities / total equity) is 2.78. This financial analysis was done using financialstockdata.com (sign up using our promo code GCI here). You can view QCOM’s Q1 2022 earnings here and their 2021 Annual Report here.
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Bullish Thesis
Here are three points to support the bullish thesis updates:
5G Patent: Every smartphone will need a chip that allows the phone to use 5G or 4G and QCOM owns the patent for both. The service of each phone will become more and more competitive and any advantage that a phone can have will make it more marketable. The reliance of smartphones in everyday lives has become almost essential. Also more devices such as new automobiles are implementing chips in order for cars to give 5G service to its passengers. With the increasing reliance to always be connected to the internet, more 5G chips are going to be needed in order to fulfill that desire.
Smartphone Reliance: As mentioned above, everyone is seemingly reliant on their smartphones daily. Some people have jobs that require them to be on their phones constantly. With the addition of navigation and other tools that smartphones allow people to have in their pockets, some would be completely lost without their phone. This trend seems to be increasing as phones become more powerful and more people acquire smartphones around the world.
Recent Dividend Hike: I normally do not include something like this as a bullish argument to invest in a company, but it is hard to ignore this when QCOM increased its dividend payout by 10% after crushing predictions last quarter. This dividend can make the investment more enticing and it shows that unlike Intel, Qualcomm is growing rapidly. Qualcomm seems to continue to grow and the reliance on chips increases.
Bearish Thesis
Here are three points to support the bearish thesis:
Decrease in Tech Demand: One large issue with a potential recession is that consumers will need to find an area to decrease spending. Tech products seem like the obvious answer to reduce spending. Phones and other tech products will more than likely be used longer as spending is increased due to inflation in other areas such as gas and groceries. If you are an investor in Qualcomm or any tech company, additional stimulus or spending power would have more consumers splurging on tech so that will be something to look out for going forward.
Reliance on Tech Production: Qualcomm is reliant on companies producing products that need their chips. A reliance on companies, although their chip is very much needed for various products including smartphones, is a difficult spot to be in. If a company fails that is not Qualcomm but is a customer of QCOM it would be a giant blow to Qualcomm’s revenue. This reliance could hinder the growth of QCOM as it needs more customers to need its product in order to grow.
Chip Shortage: This point seems unavoidable for almost every company in the space in the short term. Qualcomm is no different than others in the semiconductor space as the pandemic and supply chain issues have negatively affected their business. It seems that this is one result of the pandemic that may linger on longer than initially anticipated. Qualcomm and others in the space look to find a solution and continue the growth of their company.
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Brandon
Disclosure: The article was written by Brandon Keys, and it expresses the author's own opinions. I am not receiving compensation for it. I have no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Brandon is not a financial advisor. I encourage all readers to do further research and do your own due diligence before making any investments.