Qualcomm’s efficiency ratios
In this series, we’ve learned that Qualcomm’s (QCOM) stock continued to fall as its earnings were hit by weak smartphone demand and loss of modem orders from Apple (AAPL). Abiding by its promise to shareholders, Qualcomm started its accelerated stock buyback program of $30 billion, which it originally planned to use to acquire NXP Semiconductors (NXPI). The acquisition failed as it got stuck in the US-China trade war.
The failed NXP acquisition, a $2 billion termination fee paid to NXP, fines from regulators, and high litigation expenses from its lawsuits with regulators and customers, hurt Qualcomm’s ROI (return on investment) and ROE (return on equity). The above expenses only led to cash outflow and not inflow, negatively impacting its efficiency ratios, which show the returns its management delivers from investments.
Return on equity
A company’s ROE shows the profit a company can generate from shareholder capital in a particular period. A company can improve its ROE by repurchasing shares or improving its net income.
As seen from the above graph, Qualcomm’s ROE fell from 18.0% in fiscal 2016 to -30.7% in fiscal 2018 as the above one-off expenses pushed the company into a GAAP (generally accepted accounting principle) net loss of $4.9 billion in fiscal 2018. On the other hand, Intel (INTC) improved its ROE from 16.2% in 2016 to 29.3% in 2018.
Qualcomm is now working out its legal headwinds and looking to reduce the frequency of one-off expenses that do not generate returns. At the same time, it plans to buy back $30 billion worth of shares to improve its RoE. The results of these efforts are visible in its TTM (trailing 12 months) ended January 2019 with ROE of 15.9%.
What do Qualcomm’s stats tell investors?
The technical indicators suggest that it is not a good time to buy Qualcomm, and so does its price ratio. These indicators don’t suggest selling the stock either. However, the efficiency ratio suggests long-term investors hold the stock as the management works towards improving its returns. Even if the stock price doesn’t increase, investors can enjoy dividend payments.
Check out all the data we have added to our quote pages. Now you can get a valuation snapshot, earnings and revenue estimates, and historical data as well as dividend info. Take a look!