The past six months have been a windfall for Qualcomm’s shareholders. The company’s stock price has jumped 53.8%, hitting $197.95 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Qualcomm, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Qualcomm Not Exciting?
We’re happy investors have made money, but we don’t have much confidence in Qualcomm. Here are three reasons why QCOM doesn’t excite us, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a stretched historical view may miss new demand cycles or industry trends like AI. Qualcomm’s annualized revenue growth of 8.6% over the last two years is above its five-year trend, which is encouraging. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Qualcomm’s revenue to drop by 2.9%, a decrease from its 7.5% annualized growth for the past five years. This projection is underwhelming and implies its products and services will face some demand challenges.
3. Shrinking Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Looking at the trend in its profitability, Qualcomm’s operating margin decreased by 12.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 23.2%.
Final Judgment
Qualcomm’s business quality ultimately falls short of our standards. After the recent rally, the stock trades at 21.4× forward P/E (or $197.95 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at a dominant aerospace business that has perfected its M&A strategy.
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