A Second Chance at One that Got Away?
Keith is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s not a good idea to buy a stock on hearsay. But sometimes what someone has to say about a company is worth hearing. Back in 1994 an engineer with one of our vendors shared with me how much he enjoyed working for his employer and how excited he was about the company’s prospects. He didn’t divulge any insider information, but his enthusiasm clearly showed. Before he left for home, he gave me a small red pocket knife with the vendor’s name and logo.
I still recall telling my wife that if I had $10K to invest I’d be tempted to buy the stock. I didn’t have the $10K and I didn’t buy the stock. If I had, that $10K would have grown to $500K at the stock’s peak in the heady market of 2000. The stock did get hammered in the dot-com bust, but that $10K would still be worth over $300K today. For years I kept the knife that had one word displayed on its side: Qualcomm (NASDAQ: QCOM).
Probably every investor has a story about the one that got away. Even more investors likely have a story about the one they wish had gotten away. However, it is better to focus on the present with an eye toward the future than dwell on the past. Qualcomm has certainly had success over the years. Are its good days a thing of the past or is the stock still a good pick? Let’s examine the Qualcomm of today.
Qualcomm has three major operating segments:
The key for Qualcomm’s continued growth is in its QCT and QTL businesses. The company faces competition from major players including Broadcom (NASDAQ: BRCM), Intel (NASDAQ: INTC), and Texas Instruments (NASDAQ: TXN), as well as several smaller companies. Broadcom, the number two company in the mobile chipset market behind Qualcomm, presents perhaps the biggest threat as it's gained traction in supplying chips for Android-based smart phones.
Qualcomm’s strengths are significant, though. The company is viewed by many as the leader in LTE technology. Its chipsets are used in multiple OS platforms including iOS, Android, Windows Phone, and BlackBerry, with over 340 devices already using its Snapdragon processor and more than 400 on the way. Qualcomm’s relationship with Apple (NASDAQ: AAPL) allows it to benefit from the explosion in iPhone and iPad usage.
Slicing the Numbers
Several numbers stand out when analyzing Qualcomm’s performance. One that looks especially good is its market share across smart phone platforms.
Considering the ongoing strength of Android and iPhone, Qualcomm’s market share in these platforms is impressive. Another eye-grabber is Qualcomm’s growth in emerging markets.
Qualcomm is making a concerted effort to win in the emerging regions. With its head start in LTE technology, established stronghold in CDMA, and vast resources, the growth shown in the graph above will likely continue into the future.
Of course, we can’t overlook the financial measures. Qualcomm compares pretty well with its large cap peers:
Qualcomm’s forward P/E, while higher than the others, is at the low end of its range over the past five years. Its momentum continues into calendar year 2012 also. Revenues grew nearly 28% in the most recent quarter compared to last year. Earnings jumped over 123% versus the same quarter last year. The company is also sitting on around $15B in cash.
Catch a Flying Knife
There are risks associated with Qualcomm. The company operates in a fiercely competitive industry. Technology can change quickly, making previous approaches obsolete. Qualcomm is also involved in litigation over patent disputes that could hit its bottom line if it loses these battles.
The positives outweigh the negatives, however. Qualcomm is a leader in a great growth market. It certainly has the resources to invest for continued rapid acceleration and has the commitment to do so. The company’s financial performance has been solid and the stock’s performance has followed suit.
We’re not in 1994 anymore, so don’t expect to see another 30X increase. But with Qualcomm, the knife is flying rather than falling. More good times appear to be ahead.
Keith Speights owns shares of Apple. The Motley Fool owns shares of Apple, Intel, and Qualcomm. Motley Fool newsletter services recommend Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.