Like many of its chip peers, Qualcomm (NASDAQ:QCOM) has been on fire. Shares hit new 52-week highs a few trading sessions ago and Qualcomm stock remains in demand among investors.
It helps that the company has several long-term catalysts in play, while the overall market continues to rally, rally, rally. And in the sector, chips and semiconductors especially are in “surge mode.” Whether that’s Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), Intel (NASDAQ:INTC) or others, the group simply continues to climb.
Let’s take a closer look at QCOM.
Valuing Qualcomm Stock
Earlier this month, we asked if QCOM is setting up for a banner 12 months. The short answer? Yes. The long answer underscores a bit more growth.
Qualcomm is in the beginning of its fiscal year for 2020, but has yet to report the first quarter results. For the year, analysts expect the company to earn $4.19 per share, leaving QCOM trading at 22 times earnings, but it’s not as expensive on a forward basis.
While current predictions call for 18.4% earnings growth this year, estimates for 2021 call for an incredible acceleration to 45.6% growth, generating earnings of $6.10 per share. That leaves Qualcomm stock trading at just 15 times its 2021 earnings.
As for revenue, estimates call for 13.1% growth this year and an acceleration up to 23% growth in fiscal 2021. The numbers here are astounding really, and Qualcomm investors may be set to be major beneficiaries.
As Citi analysts recently argued, the company has big exposure to the coming wave of 5G. As Apple (NASDAQ:AAPL), Samsung and other companies shift to 5G service, it translates to top- and bottom-line growth for QCOM. That’s why analysts are so bullish on the coming 24 months of business.
Not Without Risks
Qualcomm stock trades at a reasonable valuation, has big-time growth estimates over the next two years and pays a 2.5% dividend yield. It’s well-positioned in the coming 5G cycle and has solid financials.
But none of that means it comes without risk.
First, the company may face regulatory hurdles. While the Trump administration recently came to its defense, the FTC has been hitting Qualcomm hard. While the situation could certainly improve, regulatory risks are higher for Qualcomm stock than many others.
Furthermore, it was once in a legal spat with Apple, but then the tables suddenly turned. Apple paid Qualcomm billions to settle and dropped all of its lawsuits, as the company instead wanted to clear the air and do business. However, Apple has also bought Intel’s modem business for $1 billion.
While this is not a short-term risk, the long-term risk is that Apple begins developing its own chips and eventually cuts Qualcomm down or out. That leaves some long-term questions out in the open, but for now, Apple’s ready to play ball, which will lead to big business for the company. Still, this is a situation to monitor going forward.
Lastly, there’s simply the risk that analysts and investors alike are too bullish on 5G and QCOM’s future growth. If the company has to lower expectations or if consensus estimates prove too high, particularly the out years (2021), then Qualcomm shares could take some heat.
Trading QCOM Stock
Despite some of these risks, I’m still looking at Qualcomm as one to buy. The reason is simple. The fundamentals — for now — are attractive, and so is the chart. When the technicals and fundamentals align, it creates a very good situation for investors.
Earlier in the month, QCOM dipped down to the 50-day moving average, but was instantly gobbled up by investors. The ensuing rally sent shares above $92.50 resistance to new 52-week highs.
While bulls may buy the dip on a pullback to the 20-day moving average, I’d like a correction down to the 50-day moving average and even further down to uptrend support (blue line). For now, those deeper dips have been the optimal buy spot for active bulls.
If it fails, the $80 level and the 200-day moving average are on the table, whichever comes first. Over the $96.17 high and $100 is possible for Qualcomm stock.
Bret Kenwell is the manager and author of Future Blue Chips and on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL and NVDA.