Why Qualcomm’s Stock Decline Is Set to Accelerate
Qualcomm’s shares are on track to tumble as much as 35% from their 2018 peak.
(Note: This fundamental analysis is authored by a financial writer and portfolio manager.)
Shares of Qualcomm Inc. (QCOM) are technically positioned to fall by up to 21% from their closing price on Wednesday. If this projection holds true, it would mark a total intraday decline of approximately 35% from the company’s record high reached on September 18. This anticipated drop is significantly sharper than the decline options traders had predicted earlier this week prior to the earnings announcement.
On November 7, Qualcomm reported fiscal fourth-quarter results that surpassed expectations, with earnings exceeding estimates by 8% and revenue beating forecasts by 6%. However, the company issued a disappointing revenue outlook moving forward.
Data source: YCharts
Technical Analysis Overview
The stock has broken below key technical support levels in daily trading sessions, signaling a potential steep decline toward $49.85, which represents the next support level. This would equate to a 21% drop.
Moreover, the relative strength index (RSI) has been trending downward after previously exceeding overbought conditions, indicating diminishing bullish momentum. Trading volume has also increased in recent weeks amid the stock's decline, suggesting a growing number of sellers entering the market.
Revenue Outlook Weakness
The primary catalyst behind the stock’s weakness is Qualcomm’s fiscal first-quarter revenue guidance, which came in 12% below analysts’ consensus estimates at the midpoint.
Data source: YCharts
Buybacks Inflate Earnings
Qualcomm’s earnings per share have been buoyed by extensive share repurchase programs. Despite trading at a relatively low price-to-earnings ratio of 11 for 2020, the stock does not represent an attractive value. This is because buyback-driven earnings growth conceals the ongoing decline in revenue, which has been trending downward steadily since 2014. As long as revenue continues to underperform, the stock is likely to face persistent pressure.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and manages the firm’s actively managed, long-only Thematic Growth Portfolio. He typically holds stocks for three to five years. For more information on Kramer’s background and portfolio holdings, click here. The information provided is for educational purposes and does not constitute an offer or solicitation to buy or sell any securities or investment strategies. Investing carries risks and is not guaranteed. Consult a qualified financial advisor or tax professional before implementing any strategies discussed. Upon request, the advisor will provide a list of all recommendations made in the past twelve months. Past performance is not indicative of future results.
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