[1] Market Valuation: At P/EBIT of 26.7, MSI is trading at a more expensive price compared to 14.5 for QCOM
Market ValuationQualcommMotorola Solutions Incvs Motorola Solutions IncAs of 10/22/2021 Price To Sales Ratio (P/S)4.65.3CheaperPrice To OpInc Ratio (P/EBIT)14.526.7CheaperPrice To Earnings Ratio (PE)16.336.4Cheaper
[2] Growth & Profits: Considering the valuation, the market appears to be undervaluing QCOM's higher growth and demonstrated profit generation ability - QCOM has demonstrated better revenue growth: 1.6% last Q (qoq), 64.7% last Q (yoy), 62.9% LTM, and 1.9% annually in last 3 FY - In comparison, MSI has grown at 11.2%, 21.8%, 3.2%, and 5.1% respectively, during the same periods - Similarly, QCOM has shown greater profit generation promise: QCOM, 26.4% average margin, 6.9% average margin expansion, and 34.4% cash flow - The corresponding values for MSI stand at 19.1%, 0.09%, and 23.5%Note: Average margin is based on average of last Q, LTM, and last 3 FY, while margin change is based on last Q margin vs 3Y average
Growth & ProfitQualcommMotorola Solutions Incvs Motorola Solutions Inc As of 10/22/2021 Revenue GrowthLast Q Growth (QoQ)1.6%11.2%Growing SlowerLast Q Growth (YoY)64.7%21.8%Growing FasterLTM Growth62.9%3.2%Growing FasterLast 3 Fiscal Year CAGR1.9%5.1%Growing Slower ProfitabilityLast Q OpInc Margin27.2%18.8%More ProfitableLTM OpInc Margin31.7%19.9%More ProfitableLast 3 Fiscal Year Average20.3%18.7%More ProfitableLTM FCF Margin34.4%23.5%Higher Cash Flow %
[3] Financial Risk: Then, is the market is assigning more risk to QCOM? Unlikely as the company does not appear to be at higher risk vs MSI - QCOM has a better debt position, with debt as % of equity of 1.4% vs 13.5% for MSI - QCOM has more cash cushion, with cash as % of assets of 33.3% vs 17.3% for MSI
Financial RiskQualcommMotorola Solutions Incvs Motorola Solutions Inc As of 10/22/2021Debt as % of Equity1.4%13.5%Lower Debt LoadCash as % of Assets33.3%17.3%Better Cash Position
[4] Market Returns: QCOM is cheaper, has higher growth, and no extra risk; Appears to be a reasonable choice but what about market returns? - MSI has higher average annualized return of 35.4% vs 23.2% for QCOM based on key market periods - These key market periods include, year-to-date, pre-covid to now, and 1, 2, and 3 years prior to covid
MetricsMSIQCOM Recent Returns YTD46.0%-12.7%LTM45.6%3.5%Pre-Covid To Now49.9%69.9% Last 3 Years Returns101.3%103.6%Sharpe Ratio0.900.52Max Drawdown-10.9%-25.6%
Precovid date is taken as end of Feb 2020
Notes:
[1] Q = quarter, LTM = last twelve months, FY = fiscal years, yoy = year-on-year, qoq = quarter-on-quarter
[2] Revenue growth decision is made by giving more weightage to long-term revenue growth (3-year average) and lesser weightage to quarterly growths
[3] Margin mentioned is average of last Q, LTM, and last 3 FY; margin increase is average of increase in last Q vs LTM and increase in last Q vs 3-FY average