QCOM Stock Report

2-Year Price History

Ockham’s Rating

QCOM Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, QCOM the high and low end of the Price to Sales per share ratios are 10.61x and 5.59x respectively.

Notice that QCOM’s current Price to Sales per share ratio is 7.37x, which is slightly under its historical average. This level of Price to Sales gives us a fairly neutral position on the QCOM shares. We would like to see a drop in the Price to Sales ratio just a little bit more (given current sales figures) before we would become more positive on a Price to Sales basis. Such a drop would increase the attractiveness of the stock but, as always, would need to be considered in the context of all other valuation factors.

QCOM Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of QCOM, Ockham views their current Cash Earnings as significantly above its historical average multiple of Cash Earnings. Looking at the last 9 years we can get a good understanding of what investors have grown to expect from QCOM. For example, QCOM’s Cash Earnings ratio per share has fluctuated between 16.41 and 32.83 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where QCOM is with respect to prior business periods.

So what does this tell us about QCOM in particular? Basically, we would value the current level of Cash Earnings per share (which is at 33.34) as significantly overvalued. Just by looking at the last closing price of QCOM, which was $44.68, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded QCOM with a higher stock price. So basically, we don’t view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that QCOM may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.

QCOM Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don’t require dividend payments for company’s whose management has elected to forgo them entirely.

When reviewing dividend yields for QCOM, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management’s confidence in the company. QCOM’s estimated annual dividend is $0.68 resulting in a current dividend yield of 1.52%. The highest dividend yield from QCOM over recent history was 3.30% while the lowest dividend yield was 0.00%. The current dividend yield is below the historical median, which is slightly off-putting. We are a bit adverse to QCOM from this valuation metric.