Current share price: $55.59
QUALCOMM Incorporated was founded in 1985 and is based out of San Diego, California. Qualcomm's main products are chips and system software used in mobile devices and in wireless networks. The company grants licenses to use portions of its intellectual property portfolio. This portfolio related to the technology and implementation of CDMA2000, WCDMA, CDMA TDD, and LTE.
The simplest valuation is to compare an average analyst target to the current price. The mean analyst target is just 2% above the current price. Analysts are often overly optimistic during bull markets, an analyst price upside of just 2% should be taken as a warning sign.
The next set of valuations are Graham Valuations. Simple Stock Valuation uses 4 variants that are based upon different time tables for calculating EPS and EPS growth. The four variants strongly diverge on the value of Qualcomm. Valuations range from 82% overvalued to 76% undervalued, this is due to large fluctuations in EPS growth in recent history. When a large enough time period is used to smooth the fluctuations (a 10 year time period) the valuation of Qualcomm based upon Graham formula is $62.26. This represents a 12% upside. Over the 10 year time period Qualcomm's debt level has not significantly change, therefore no adjustments will need to be made to the Graham valuation.
The relative valuation techniques are used value stocks by comparing current key ratios to the values that it has historically traded at. Buying at less than the historic values represent a good value. Based on historic multiples QCOM is trading at a significant discount to what it has normally traded at. 3 out of 4 key ratios are at least 17% below what they historically are.
Intrinsic valuations include discounted cash flow (DCF), dividend discount model (DDM), and Earnings Power Value (EPV). The DCF model values the QCOM at $56.00, suggesting almost no upside potential remaining. EPV values Quallcomm at $49.90 confirming that QCOM is trading in the ballpark of its value. The dividend growth model, DDM, values the QCOM at $67.79.
Simple Moving Average
QCOM's 13 day simple moving average presents two bullish signs. The 13 day SMA is rising and the current share price is above it.
The MACD also displays two bullish signal indicators. The first is that it is above its moving average and the second is that it is positive in value.
On Balance Volume
The slope of the On Balance Volume indicator is positive, confirming the bullish trend shown in the other technical indicators.
Qualcomm is currently priced at a level justifying further in depth research. Intrinsic valuations show little upside remaining, however the large potential upside seen based upon relative valuations is enough to warrant a closer look at QCOM. There has been a recent run-up in price, longs looking to enter a position may benefit from waiting for the stock to cool off.
QCOM represents an acceptable stock to trade as a value investor. Technical indicators are unanimous and strongly bullish. Qualcomm is appropriately valued skewing the risk/reward further toward reward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
This website expresses my own opinion. I am not a financial advisor. All opinions, research, analyses, and other information provided on this website are provided as general market commentary and do not constitute investment advice.