Today we have a speculative idea: take stock of semiconductor components manufacturer Qorvo (NASDAQ: QRVO), in order to make money on their rebound.
Growth potential and validity: 15% behind 13 Months; 28,5% behind 26 Months; 10% per annum during 15 years.
Why stocks can go up: they fell hard, and the demand for the company's products is growing.
How do we act: we take shares on 152,09 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
The company makes semiconductors. We did a detailed review of her business earlier., so we won't repeat ourselves here.. The main point is, that Apple is the largest customer of Qorvo - 30% proceeds, and the main markets are the USA and China.
Arguments in favor of the company
Fell down. Since July 2021, the company's shares have fallen heavily: with 199 to 151,72 $.So we can pick them up waiting for the rebound.
Clients' environment. Although Apple has not abandoned its plans to become a predominantly services business, while its efforts to develop this segment are defeated in a lawsuit with Epic Games. Therefore, the segment of devices will remain the main engine of Apple's business for an indefinite time., which means, Qorvo can hope, that her orders from the apple company will remain at a consistently high level for a long time to come.
At the same time in China, in Qorvo's second most important market after the US, huge money is being invested in the development of semiconductor production - this will also contribute to the growth of orders for Qorvo products.
Well, in principle, the company's success is facilitated by the development of the high-tech sector: IoT and more will benefit Qorvo's business just as much, rather than Skyworks.
Inexpensive. Company P / E — 15.68 and P / S — 3,83. Taking it into account, you can fairly judge, that there is still room for growth. Fortunately, the company's capitalization is not very large - about $16.72 billion, which will facilitate the pumping of its shares.
Can buy. Considering all of the above, and the semiconductor M&A boom, very likely news of the acquisition of the company. Finally, Qorvo is a profitable margin business with good prospects. And at the same time it costs quite adequately.
Dividends. The company does not pay, but, given the profitability and good prospects, it could well pay dividends in the area 8 $ in year, which would give more 5% per annum. Think, some activist investor can campaign to force Qorvo management to introduce regular payouts.
What can get in the way
usual suspects. The main problem for the company in the near future is the increase in the cost of raw materials and labor.. This is an almost inevitable problem for at least the next couple of quarters., and we can only hope, that the company will be able to pass on these rising costs to customers without impacting its reporting.
Chinese "Messenger". I do not think, that the American state is eager to kill its high-tech exports: this would mean undermining its own defense and technological potential. Therefore, if the United States strengthens the technological isolation of China, then Qorvo will be given export licenses, so that it can continue to sell its products to China.
But still, news about new sanctions against Chinese manufacturers of high-tech products will have a very bad effect on Qorvo quotes in the short term..
Also, in the long term, the development of the semiconductor industry in China may lead to, that there will be local companies in China, who can replace Qorvo.
Accounting. There is enough money at the disposal of the company to close all urgent debts. But, Considering, that the semiconductor business is quite complex and capital intensive, can be expected, that Qorvo will spend on expanding and modernizing its production. This will increase the debt burden and reduce the likelihood of the company introducing tangible dividends..
Poisoned apple. The company's long-range dependence on Apple, more than three years, can be a source of problems, if Apple tries again to move to a service business model and reduce the share of devices in its business: then Qorvo's sales may suffer. Basically, any renegotiation of Qorvo's relationship with Apple could result in negative reporting implications.
What's the bottom line?
We take shares now by 152,09 $. Then there are three options:
- wait for the price 175 $. Think, we will reach this level in the next 13 Months;
- wait for stock to return 195 $. Think, it's better to rely on 26 Months;
- hold shares 15 years, to see, how Qorvo will grow into a digital infrastructure colossus.
