The stock’s recent earnings report has some investors wondering what’s next for the chipmaker. Earnings are a critical measure for determining the price of a company’s shares, and it’s been found that a company’s share price often correlates to trends in its earnings estimates. As a result, it’s essential to keep tabs on a company’s earnings-per-share (EPS) growth over time and to understand how that growth is trending relative to its peers.
Qualcomm’s EPS growth has contributed to its stellar performance over the past five years, earning it premium status in the market. However, as earnings growth is expected to slow soon, Qualcomm’s premium valuation could be at risk.
On May 3, 2023, Qualcomm reported second-quarter earnings that missed expectations. The chipmaker’s bottom line grew 17% yearly, but revenue declined by the same amount due to soft demand patterns and elevated channel inventory levels.
QCOM’s revenue decline was mainly the result of a 17% decrease in handset chip sales, which is its most profitable segment. The segment produces the Arm-based system on chips (SoCs) at the heart of most Android phones, and it also sells stand-alone baseband modems to smartphone manufacturers like Apple.
While the slump in smartphone sales has been a big blow to Qualcomm’s business, the company is poised for future success with its massive portfolio of wireless patents and growing Internet of Things (IoT) revenues. The company is doubling down on IoT by investing in new factories and hiring thousands of engineers.
Moreover, Qualcomm’s upcoming acquisition of NXP Semiconductors will help it expand its footprint in IoT and automotive markets and strengthen its position in artificial intelligence (AI). This move will accelerate the company’s long-term strategy to dominate the mobile and automotive semiconductor markets.
The stock’s rally has been supported by several technical indicators, including a golden cross formation on November 17, 2021. A golden cross is a bullish chart pattern formed when a shorter-period moving average, such as the 50-day simple moving average, crosses above a longer-term moving average, such as the 200-day simple moving average.
The technical indicator is a buy signal as it indicates that the stock could be about to reverse its bearish downtrend. In addition, QCOM’s p/e ratio, which measures the stock’s current share price relative to its earnings per share, has been pushed above its long-term moving average, indicating a potential breakout. Lastly, the stock’s dividend yield is above its peers, further supporting the case for a potential bullish trend. We recommend buying QCOM on dips until the earnings-per-share miss and subsequent positive EPS surprises fade or until the stock turns down from its two-year high of $193.58. As of this writing, the stock trades at $193.58, with a trailing 12-month P/E ratio of 12.87. The author owns shares of Qualcomm.
