Is Qualcomm a Good Stock to Buy?

The company’s peers include Broadcom Corporation (NASDAQ:BRCM), Texas Instruments Incorporated (NASDAQ:TXN), Motorola Solutions Inc (NYSE:MSI), and Nokia Corporation (NYSE:NOK). Broadcom also gets an optimistic outlook from the sell-side, carrying trailing and forward P/Es of 25 and 11, respectively. That company’s business also hasn’t been performing as well as Qualcomm’s recently- revenue growth was a good bit lower last quarter than a year earlier and net income was actually down. Our impression is that Qualcomm looks like a better value than that company.

Texas Instruments and Motorola have forward earnings multiples in the 15-16 range, even with Qualcomm. These companies have each been seeing high earnings growth, but revenue numbers have been close to flat. They’d be interesting buys if they can continue improving on the bottom line, but we’d have to review their prospects more closely to determine if they can sustain their earnings growth (which would eventually require better revenues). Nokia is unprofitable on a trailing basis, and is expected to remain in the red for 2013; with its revenue down, we’d avoid the stock.

Purely in terms of trailing earnings Qualcomm doesn’t look great, but because the business has been doing well recently it deserves consideration as a “growth at a reasonable price” stock. We do think that its growth rate will come down, and in the short term it may underperform analyst expectations, but the current price implies a fairly short growth period and we would at least say that it is a better buy than Broadcom.