Forty-four leading analysts reporting to Standard & Poor’s Capital IQ come to a consensus 5-year annual estimated return grow rate for QUALCOMM, Inc. (NASDAQ:QCOM) of 16%. In addition, Qualcomm is currently trading at a P/E of 15.2, which is inside the “value corridor” (defined by the orange lines) of a maximum P/E of 19.2. If the earnings materialize as forecast, Qualcomm’s valuation would be $149.14 at the end of 2018, which would be a 17.8% annualized rate of return including dividends. A graphical representation of this calculation can be seen in the Estimated Earnings and Return Calculator below.
Now, it’s paramount to remember that this is simply a calculator. Specifically, the estimated total return is a default based on the consensus of the analysts following the stock. The consensus includes the long-term growth rate along with specific earnings estimates for the next two upcoming years. Further, the dividend payout ratio is presumed to stay the same and grow with earnings. Taken collectively, this graph provides a very strong baseline for how analysts are presently viewing this company. However, a F.A.S.T. Graphs subscriber is also able to change these estimates to fit their own thesis or scenario analysis.
Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in QUALCOMM, Inc. (NASDAQ:QCOM) to an equal investment in a 10-year Treasury bond, illustrates that Qualcomm’s expected earnings would be 4.6 times that of the 10-year Treasury bond interest. This comparison can be seen in the 10-year Earnings Yield Estimate table below.
Finally, it’s important to underscore the idea that all companies derive their underlying value from the cash flows (earnings) that they are capable of generating for their owners. Therefore, it should be the expectation of a prudent investor that – in the long-run – the likely future earnings of a company justify the price you pay. Fundamentally, this means appropriately addressing these two questions: “in what should I invest?” and “at what time?” In viewing the past history and future prospects of QUALCOMM, Inc. (NASDAQ:QCOM) we have learned that Qualcomm appears to be a strong company with solid upcoming opportunities. However, as always, we recommend that the reader conduct his or her own thorough due diligence.
Disclosure: Long MCD, QCOM at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
