Chip-maker Broadcom (NASDAQ:BRCM) is near the top of Fortune’s list of the 10 largest fast-growing companies — and it’s 84th-fastest growing company overall. Does that mean you should own its shares?

Broadcom recently announced the acquisition of a big networking chip-maker, for which it paid a premium. The new addition is mobile network chip-maker NetLogic Microsystems (NASDAQ:NETL). At $3.7 billion, the deal is Broadcom’s biggest and is priced 39% above its market value. Fortune says analysts agree that Broadcom should expand in this market.

Is Broadcom’s strategic expansion a good enough reason to buy its stock? Here are three reasons to consider it:

• Low valuation. Broadcom trades at a price/earnings-to-growth ratio of 0.68 (where a PEG of 1.0 is considered fairly valued) — and has a P/E of 19.5 on earnings forecast to grow 28.6% to $2.31 in 2012.
• Great earnings reports. Broadcom has been able to meet or beat analysts’ expectations in all of its past five earnings reports.
• Higher sales and profits and decent balance sheet. Broadcom sales have grown at a 16.4% annual rate over the past five years, from $3.7 billion (2006) to $6.8 billion (2010), and its net income has increased at a 30.5% annual rate, from $379 million (2006) to $1.1 billion (2010) — yielding a solid 16% net margin. Its debt has risen, but its cash remains solid. Specifically, its long-term debt was $698 million in 2010 after previously being debt-free, while its cash was unchanged during the five years at $2.7 billion.

One negative:

• Out-earning its cost of capital — but getting worse. Broadcom is earning more than its cost of capital — but it’s falling behind. How so? It’s producing negative EVA momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In 2011, Broadcom’s EVA momentum was -3%, based on six months annualized 2010 revenue of $6.1 billion, and EVA that fell from six months annualized 2010’s $222 million to six months annualized 2011’s $60 million, using an 11% weighted average cost of capital.

It looks to me like the positives for Broadcom outweigh its negative EVA momentum. If its 2012 EPS forecast is right, this fast-growing company is trading at a cheap price.

Peter Cohan has no financial interest in the securities mentioned.