Should Investors Buy Broadcom Stock Before September 5? | AVGO Stock Analysis | Semiconductor Stocks

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브로드컴은 VMware 인수 후 매출 성장(전년比 43%)과 FCF 창출력이 강하나, 인수 영향으로 단기 수익성 하락이 예상됨. 연간 매출 가이던스를 510억 달러로 상향. 밸류에이션은 선행 PER 27.2배로 2022년 대비 약 3배 상승한 고점권이라 실적 발표 후 하방 리스크가 크다고 판단. 보유 등급은 경계선 매수였으며, 실적 전후 반반 분할 매수를 권고.

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01. the semiconductor and software company broadcom September 5th investors are curious if they should buy broadcom stock before it announces quarterly earning answer what investors should look for from broadcom when it announces earnings what are the big things to look out for from this interesting compann its latest quarter where it reported on on June 12th broadcom said Revenue came in at$ 122.5 billion which was up 43% from the same quarter last year however that was not organic Revenue growth the company made an acquisition of VMware which added significant to the company's Revenue total the cash flow from operations of 4.58 billon ion for the second quarter resulted in 4.4 billion in free cash flow which was 36% of Revenue the company does an excellent job of turning sales into cash flow and it's been one of the more profitable companies of the last decade the acquisition of VMware will bring down the company's profitability in the near term as it digests the acquisition and then the company management said that VMware will have profit margins similar to what broadcast com's operating profit margins have been in the last decade which I will share with you a little bit later in the video the company raised their annual revenue guidance for fiscal year 2024 to approximately $51 billion and that would be an increase of 42% from the same time last year VMware will contribute to the company's Top Line the management saying that revenue from AI products was a record $3.1 billion during the second quarter and infrastructure software Revenue acceler ated as more Enterprises adopted the VMware software stack to build their own private Cloud therefore the company said we are raising our fiscal year 2024 guidance to 51 billion for revenue and eidat to come in at 61% of Revenue remember IA is earnings before interest taxes depreciation and amortization as I shared with you earlier the company's operating profit margin has been excellent over the last decade and increasing in the latest update it was 33.5% as I mentioned the operating profit margin will be lower in the near term as the company digests the acquisition and then management said that VMware will be additive to their profit margin longer term after they finalized the cost cutting efforts and synergies realized the profit margin will likely increase and many companies say that when they make an acquisition and it's not always always the case where the acquisition does actually make sense and does actually add to profitability many times companies overpay for Acquisitions but broadcom has been good with their Acquisitions they've shown a history of making prudent Acquisitions that have benefited shareholders so it's reasonable to assume that this most recent acquisition of VMware will be good for shareholders in the long run similarly the company's cash flow from operations to sales ratio has been improving up to 44.5% in the most recent trailing 12mon period That's up from around 26% in 2015 I love to see this as an investor where a company as their revenue grows their profit margins and their cash flow from operations improve that demonstrates to me that they're benefiting from economies and scale and they benefiting from the learning that happens as you evolve your business as you do the same thing over over and over again you get better or you should get better and you should be more profitable because you're gaining experience you're learning how to do these tasks more efficiently and you're implementing technology to improve your profit margins and that's precisely what I see from broadcom and what I've seen from broadcom over an extended period of time not just one quarter or one year the return on invested Capital has been less impressive for broadcom while it has been improving a return on invest invested capital of just 10.8% in the latest period is not that impressive hopefully for broadcom stock investors the roic will return to above 20% as it digests VMware realizes those Cost Cuts and synergies as it cross sells its existing customers to VMware software the profit margins increase and hopefully that drives up return on invested Capital which is a critically important metric for long term investors broadcom stock has had a strong year and last couple of years and that's led the valuation to increase it's now trading at nearly the most expensive valuation it's been trading for going back all the way to January of 20122 when measuring by the forward price to earnings ratio broadcom is trading at a forward price to earnings of 27.2 and as you can see in 2022 this ratio was around 12 or 10 hand in the low double digits or high single digits and it's roughly tripled since then of course the business is better since then the business had made more progress and great news for broadcom's long-term prospects I've had broadcom stock rated as a buy all year long and I most recently updated that recommendation on June 12th I placed it as a borderline line buy so investors curious if they should buy broadcom stock before or after earnings I would say because of the elevated valuation the risks for broadcom stock following the earnings release are to the downside the risks are to the downside in my opinion so if you're if you're on the fence whether you should buy before or after to me it seems like after would be more prudent as I usually say though surrounding earnings releas P es if you want to decrease your risk if that's your main concern is decreasing risk you can take your purchase allocation split it in two buy half before earnings and buy half after earnings that way you cut your risk in half on both sides you cut your risk of missing out by allocating half of your purchase before earnings so that way if there is a big pop after earnings you participate in that and then by splitting it up in half and buying half after earnings if there's a big drop after earnings you'll get to buy at the lower valuation following the earnings release so and that way you're really reducing your risk and getting into a stock that you might be interested in getting into so longer term it really shouldn't uh make a huge difference whether you buy before or after earnings and for short-term investors and short-term trading I would highly discourage trying to capitalize on short term moves following an earnings release and for long-term investors that want the best entry point the best entry point in my opinion would be the strategy of doing half and half with broadcom because the upside is limited here heading into earnings because of that rich valuation and you decrease the downside by splitting it up and doing half after earning