In case you are still holding on to shares of Qorvo, Inc. (QRVO - Free Report) in your portfolio, it’s high time to get rid of the stock. The odds in favor of an upside in the near term are slim. The company has been witnessing downward revisions and has weak fundamentals. Customer concentration from Apple (AAPL - Free Report) is another major concern.
Downward Estimate Revisions
Analysts have become increasingly bearish on the stock in the past couple of months with all estimates moving south and no movement in the opposite direction for the ongoing quarter.
Moreover, the company’s first quarter of fiscal 2019 earnings estimates moved down from 80 cents to 76 cents in the past 30 days. Further, in the same time period, the company’s fiscal 2019 earnings estimates moved down from $5.97 to $5.92.
Given the other unattractive attributes like low return on equity (ROE), low return on capital (ROC) and low return on assets (ROA), makes the stock look very unappealing. Qorvo currently trades at a ROE of 13.8%, much lower than the industry’s average of 22.8%. Notably, the company has an ROC and ROA of 10.3% and 10.4% compared with the industry’s average of 20.8% and 18.5%, respectively.
We note that the Qorvo currently has a trailing 12-month P/E ratio of 18.53. This level compares unfavorably with what the industry has witnessed over the last year. The ratio is higher than the average level of 17.86 and is toward its higher end of the valuation range over this period. Consequently, valuation looks slightly stretched from a P/E perspective.
Dependence on iPhone Sales
Qorvo depends on a handful of customers including Apple and Huawei to keep its revenues churning. To add to the woes, Apple’s self reliance strategy is a looming threat. Moreover, the company operates in a competitive landscape that is becoming more complex with low barriers to entry. The increased competition is exerting pricing pressure, which remains a matter of concern for the company.
Qorvo’s top-line growth is significantly dependent on iPhone’s growth trajectory. We also note that Qorvo’s share price movement depends heavily on Apple’s results, which doesn’t bode well for the investors.
Near-Term Apprehensions Likely to Continue
In order to sustain its market position, Qorvo has to constantly come up with new products. Consequently, higher spending on product development is likely to keep margins under pressure at least in the near term. Hence, we recommend investors to be wary of Qorvo shares until its Zacks Rank and estimates improve.
Zacks Rank & Stocks to Consider
Qorvo carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the broader technology sector are Western Digital (WDC - Free Report) and Mellanox (MLNX - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The projected long-term earnings growth rate for Western Digital and Mellanox are 19% and 15%, respectively.
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