Qualcomm (NASDAQ:QCOM) has suffered years of stagnation. QCOM stock has long remained range-bound as bursts of short-term optimism gave way to disappointment.
However, QCOM’s winter of discontent could finally end soon. QCOM will play a critical role in bringing 5G to the market. As a result, analysts have begun to forecast the revenue and profit growth that has eluded Qualcomm stock for years.
Hence, with improving financial fortunes driven by 5G, QCOM stock appears positioned to return to a path of sustained growth.
5G and Qualcomm Stock
To be sure, the 2010s have become a decade long-term bulls in Qualcomm stock would prefer to forget. At approximately $57 per share, the QCOM share price stands at levels seen in 2011.
Revenues peaked in 2014 and have fallen every year since then. Lawsuits with Apple (NASDAQ:AAPL) and Intel (NASDAQ:INTC) also weighed on the stock. A failed attempt at taking over NXP Semiconductor (NASDAQ:NXPI) as well as an effort by Broadcom (NASDAQ:AVGO) to take over Qualcomm did not help either.
As a result, QCOM stock has failed to sustain any moves higher.
However, the decade of darkness for Qualcomm stock may finally end soon. The company has introduced its latest chip upgrade in the Snapdragon 855. This will enable devices to receive 5G signals. It should appear in all of the major Android-powered devices as early as next year.
This could become huge for both Qualcomm stock and the tech industry in general. The latest estimates peg 5G speeds at twenty times faster than the current 4G LTE technology.
Further, 5G will handle an additional 1,000 devices per meter, reducing interference from other wireless units. Also, it will greatly enhance the use of the Internet of Things (IoT), help power autonomous cars, and will likely spawn technologies not yet invented.
These factors have fueled optimism in Qualcomm stock among analysts. They expect the company to finally resume revenue growth in fiscal 2020. We do not yet know all of the technologies 5G will make possible. For this reason, projecting long-term revenue growth becomes difficult.
QCOM’s Financials Are Improving
The financial metrics of Qualcomm stock also become important amid these changes. QCOM currently trades at a forward price-to-earnings (PE) ratio of 12.5. Such a multiple will not attract investors in a shrinking revenue environment. However, with revenue on the rebound, this valuation may begin to look excessively low.
Investors should also note that tech giants such as Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT) saw comparable PE ratios as those companies sought to redefine themselves. Now, it appears QCOM’s turn will soon come.
Other metrics favor buyers as well. QCOM’s profits shrank more often than they grew in the last five years. However, Wall Street forecasts a 16.2% increase in earnings for next year. They also expect average annual profit growth of 10.2% over the next five years.
I do not expect much growth in Qualcomm stock until next year when the anticipation for 5G begins to grow. However, the dividend may create an incentive to buy early.
This year’s annual dividend stands at $2.48 per share. This brings the current yield to almost 4.4%. Moreover, the company has increased this payout for seven straight years. Such a streak should expect and receive annual payout hikes for years to come.
TheBottom Line on QCOM Stock
Qualcomm stock appears to have sewn the seeds of its return to growth. QCOM has suffered for years as revenues fell and lawsuits stood in the way of stock growth.
However, with Snapdragon 855, Qualcomm leads the way in 5G. As a result, Wall Street now sees a path to revenue and profit growth that has long eluded the company.
Moreover, 5G will become a critical component in pushing tech growth forward over the next few years. It should also bring technologies not yet invented. These factors should bolster Qualcomm stock over the next few years.
5G will take time to adopt. Income-oriented investors may buy now for the dividend. However, I would not expect other buyers to warm to QCOM stock immediately.
However, as customers begin to use 5G-powered devices, and investors begin to see rising revenue and profits, I expect Qualcomm stock to soon return to a path of sustained growth.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.