Many wonder what will happen next with Qualcomm (NASDAQ:QCOM). Since a massive upward spike following the settlement with Apple (NASDAQ:AAPL), it continued a move upward before finding a new trading range. The recently released earnings report became a mild drag on Qualcomm stock. Now, with the battle with Apple over, another obstacle has arisen that could create another buying opportunity in QCOM stock.
Back in December, I predicted that 5G would end the winter of discontent for QCOM stock. The first sign of that came when Qualcomm settled with Apple and the shares spiked more than 37% higher in 24 hours as the companies announced the agreement. The iPhone maker likely concluded that QCOM could serve its needs better than Intel (NASDAQ:INTC) in this regard and cut a deal.
QCOM Stock’s Found a New Trading Range
Since that spike, QCOM stock has leveled off over the last couple of weeks. It also fell slightly after earnings and the company’s guide lower. Admittedly, the present financials appear uninspiring. Analysts expect only 6.8% earnings growth this fiscal year. The current price-to-earnings (PE) ratio stands at 44.6.
Nonetheless, investors should not assume that they have missed out on QCOM stock. Thanks to 5G, the picture improves dramatically in the next fiscal year. As recently as a month ago, analysts predicted $4.35 per share in earnings for fiscal 2020. Reaction to the Apple settlement added a buck to that and the projection now stands at $5.38 per share.
China’s the Next Headwind
That settled, another political battle has now emerged. Unlike the dispute with Apple, this fight appears in the geopolitical realm, largely outside of the company’s control.
The majority of the company’s revenue comes from China. This places possible near-term pressure on the QCOM as the trade dispute between the U.S. and the People’s Republic continues to simmer and flare.
On the flip side, China may find it needs to follow Apple’s lead. The need for 5G may force them to come to an agreement similar to the one Apple made with Qualcomm. I would not expect another 37% one-day spike in such an instance. Still, such a settlement would easily break QCOM stock out of the range where it has traded in recent weeks.
Low PE, High Payout Adds to QCOM Stock Appeal
To be sure, even if such a deal takes some time, other factors make QCOM stock worth the wait. Despite the much-higher earnings projection for fiscal 2020, the forward PE comes in at just 15.7x. That multiple will bring an estimated earnings growth rate of 36.5% that year. Going further out, Wall Street projects average annual profit increases of 27.05% per year over the next five years.
Furthermore, Qualcomm will make it worth it for investors to wait for the 5G revolution. Qualcomm’s current dividend stands at $2.48 a share, which takes the yield to just over 2.9%. While that pales in comparison to the 4.3% yield before the price spike, it still comes in well above S&P 500 index averages. QCOM has also increased this payout every year for the last eight years. If these payout hikes remained safe during the recent years of struggle for QCOM stock, they should continue once consumers begin buying 5G-compatible devices.
Final Thoughts on QCOM Stock
Following its settlement with Apple, QCOM stock again trades in a range as the company faces its next battle. The magnitude of QCOM’s post-settlement move, coupled with a mixed earnings report, may weigh on the equity for now. Moreover, the company relies on China for the majority of its revenue. Such concerns could bring the same stagnation to Qualcomm stock that the shares faced during the Apple dispute.
However, much like Apple, China may also have to agree to a trade settlement to move forward in 5G. Once the China situation becomes more settled and manufacturers begin to sell 5G-compatible phones in earnest, QCOM stock will have nowhere to go but up.
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.