NASDAQ:QCOM) price-to-earnings (or "P/E") ratio of 48.7x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 18x and even P/E’s below 10x are quite common. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s so lofty.” data-reactid=”28″>QUALCOMM Incorporated’s (NASDAQ:QCOM) price-to-earnings (or “P/E”) ratio of 48.7x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 18x and even P/E’s below 10x are quite common. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s so lofty.
With earnings that are retreating more than the market’s of late, QUALCOMM has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
See our latest analysis for QUALCOMM ” data-reactid=”30″> See our latest analysis for QUALCOMM
free report on QUALCOMM.” data-reactid=”47″>If you’d like to see what analysts are forecasting going forward, you should check out our free report on QUALCOMM.
Does Growth Match The High P/E?
In order to justify its P/E ratio, QUALCOMM would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered a frustrating 10% decrease to the company’s bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 9.7% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 97% as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 4.4%, which is noticeably less attractive.
In light of this, it’s understandable that QUALCOMM’s P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
It’s argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We’ve established that QUALCOMM maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. Unless these conditions change, they will continue to provide strong support to the share price.
4 warning signs for QUALCOMM that you need to take into consideration.” data-reactid=”56″>It is also worth noting that we have found 4 warning signs for QUALCOMM that you need to take into consideration.
list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).” data-reactid=”57″>It’s important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.