This Semiconductor Stock's Valuation May Be Deceiving

Broadcom stock looks like a promising long-term value play

facebook X logo linkedin

Semiconductor stock and and Apple (AAPL) supplier Broadcom Inc. (NASDAQ: AVGO) will release its fiscal first-quarter earnings results on Thursday, March 4, after the closing bell. Analysts have AVGO reporting an earnings per share (EPS) of $6.55 for the upcoming financial report.

Broadcom has a rather muted history of post-earnings reactions. It gapped higher by 7.1% last March, but shed 1% after its quarterly report in December. Overall, AVGO averages a post-earnings move of 4.4% in the last eight quarters, regardless of direction. This time around though, the options market is pricing in a larger-than-usual move of 7.1%.

Broadcom stock has seen some extraordinary growth over the past year. AVGO is up 60% in the last 12 months, carving out a channel of higher highs that culminated in a Feb. 19 record high of $495.14. And while the shares have taken a breather since then amid the broader tech selloff, their 50-day moving average has contained the damage.

AVGO Stock Chart

At first glance, Broadcom stock may seem overpriced because of its high price-earnings ratio of 72.24. However, the company’s forward price-earnings ratio of 18.76 is a much better indicator of its value.

At the start of the pandemic last year, Broadcom saw a slight decrease in revenues but has since resumed its rapid growth. In the company's latest quarter, the company increased revenues by more than $600 million. Additionally, they added over $5 billion in revenues to its top line since 2017, bringing its total annual revenue to $22.89 billion. Broadcom has seen similar growth on its bottom line, with its net income increasing by nearly $1 billion in the past three years. The chipmaker's total net income over the past year is now at $2.5 billion.

Overall, it is difficult to picture Broadcom stock not trading at a higher price 4-5 years from now. In the meantime, investors can take advantage of from the AVGO's 2.99% dividend yield. Long-term investors will want to keep tabs on AVGO if the market continues experiencing overall weakness.


Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!