- Last night, the company reported revenues and profitability that surpassed expectations, and the company also provided optimistic earnings and revenue forecasts for the future.
- Although the stock is being bid up by investors today, Broadcom stock still appears inexpensive.
After reporting a significant earnings beat on Thursday night, shares of Broadcom (NASDAQ:AVGO) climbed in Friday trading. For its fiscal third quarter of 2022, the company announced pro forma profits of $9.73 per share, which was over Wall Street’s forecast of $9.56 per share, and sales of $8.5 billion, which was above Wall Street’s forecast of $8.4 billion.
Broadcom stock is up 4.7% as of noon ET today.
What’s the Reason?
Revenue at Broadcom increased by 25% year over year, and GAAP quarterly earnings per share increased by 70% to $7.15. (GAAP). On the other hand, the news was even better than that.
Broadcom (NASDAQ:AVGO) reported a free cash flow of $4.3 billion, 51% of its revenue and 40% higher than its reported net income for the quarter. S&P Global Market Intelligence reports that the company has generated a positive free cash flow of $15.3 billion in the last four quarters. This is more than twice as much as the company reported as net income, and with a market cap of just under $200 billion, the company stock costs barely 13 times free cash flow.
Is that a fair price or too much?
From where I’m sitting, that seems like a fantastic deal. Broadcom (NASDAQ:AVGO) earnings will be predicted to increase at a rate of more than 15% each year over the next five years. The stock trades at 13 times free cash flow, and the total return ratio is a highly appealing 0.7 when considering both the stock price and the dividend yield (3.3% yield).
Although, this strategy will only pay off if Broadcom (NASDAQ:AVGO) grows at the rate experts anticipate. I still think the company is headed in the right direction, as management has projected that Q4 sales will increase by 20% year over year to around $8.9 billion. If current the company investors saw these data, they might buy the stock more enthusiastically.
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