(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Qualcomm Inc.'s (QCOM) stock is poised to drop by as much as 21%, based on technical analysis, from its Wednesday closing price. Should that happen, the stock would be down as much as 35% from its record high on September 18 on an intraday basis. The decline indicated by technical analysis is much steeper than the drop options traders were anticipating earlier this week before earnings.
The company reported better than expected fiscal fourth quarter results on November 7 with earnings beating estimates by 8% and revenue 6% better. But the company provided weak revenue guidance.
The stock has been falling below technical support in daily trading and suggests a steep decline to $49.85, its next level of support. That would be a drop of 21%.
Additionally, the relative strength index has been trending lower since rising above overbought levels. This suggests that bullish momentum is leaving the stock. Volume also has been increasing in recent weeks as the stock has declined, indicating that more sellers are entering the market.
The biggest reason for the weakness in the stock is the company's fiscal first quarter revenue guidance, which was 12% below analysts' estimates at the mid-point.
Buybacks Help Earnings
Earnings per share growth has been bolstered by significant share repurchases. But despite trading at a low 2020 PE ratio of 11, the stock is far from a bargain. That's because buyback-fueled earnings growth is helping to mask weak revenue. Revenue has been in a steady decline since 2014, and as long as the company continues to have shortfalls, the stock will suffer.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.