With a recent daily gain of 2.25%, a three-month gain of 22.68%, and an impressive Earnings Per Share (EPS) of 26.98, Broadcom Inc (AVGO, Financial) presents an intriguing case for investors. However, the critical question remains: Is the stock significantly overvalued? This analysis aims to provide investors with a comprehensive understanding of Broadcom's valuation, encouraging a closer look at the financial details that underpin this assessment.
Company Introduction
Broadcom Inc (AVGO, Financial), a global leader in the semiconductor industry, boasts an impressive portfolio of over $30 billion in annual revenue. The company has successfully expanded into various software businesses, offering 17 core semiconductor product lines. Broadcom's history is marked by consolidation, with its current structure being an amalgamation of legacy Broadcom, Avago Technologies, Brocade, CA Technologies, and Symantec. As we compare Broadcom's stock price of $1352.17 to the GF Value of $778.27, which suggests a fair value estimate, it becomes apparent that a detailed valuation analysis is essential.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price significantly exceeds the GF Value Line, it's often considered overvalued, potentially leading to poorer future returns. Conversely, a stock priced well below the GF Value Line may indicate higher future returns. With a market cap of $626.60 billion and a current price of $1352.17 per share, Broadcom (AVGO, Financial) appears to be significantly overvalued.
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Financial Strength
Investors must review a company's financial strength to avoid potential capital loss. Broadcom's cash-to-debt ratio of 0.16 ranks lower than 92.04% of its peers in the Semiconductors industry. This positions Broadcom's financial strength at a fair rating of 5 out of 10, indicating a need for careful consideration when assessing the balance sheet.
Profitability and Growth
Profitable companies generally present less risk, particularly those with a history of consistent profitability. Broadcom has been profitable for 9 out of the past 10 years, with a remarkable operating margin of 38.7%, outperforming 97.86% of its industry counterparts. This strong profitability is a positive indicator for potential investors.
Growth is a critical valuation factor, as it is closely correlated with long-term stock performance. Broadcom's average annual revenue growth rate of 14% ranks above 65.27% of companies in the Semiconductors industry. Additionally, its 3-year average EBITDA growth rate of 22.2% is higher than 64.29% of its industry peers, underlining the company's robust growth prospects.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to the capital invested. Broadcom's ROIC of 17.18 exceeds its WACC of 11.38, indicating the creation of shareholder value. The historical ROIC vs WACC comparison offers a snapshot of the company's financial efficiency over time.
Conclusion
In summary, Broadcom Inc (AVGO, Financial) appears to be significantly overvalued based on its current market price. Despite this, the company maintains fair financial health and exhibits strong profitability, with growth rates surpassing a majority of its industry competitors. For a more detailed exploration of Broadcom's financials, interested parties can access the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
