In This Article:
- By GF Value
The stock of Broadcom (NAS:AVGO, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $475 per share and the market cap of $193.9 billion, Broadcom stock gives every indication of being significantly overvalued. GF Value for Broadcom is shown in the chart below.
Because Broadcom is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 10.6% over the past three years and is estimated to grow 7.58% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Broadcom has a cash-to-debt ratio of 0.24, which is in the bottom 10% of the companies in Semiconductors industry. The overall financial strength of Broadcom is 4 out of 10, which indicates that the financial strength of Broadcom is poor. This is the debt and cash of Broadcom over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Broadcom has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $24.7 billion and earnings of $8.607 a share. Its operating margin is 25.55%, which ranks better than 85% of the companies in Semiconductors industry. Overall, the profitability of Broadcom is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Broadcom over the past years: