Is Broadcom Corporation Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Broadcom Corporation (NASDAQ: BRCM) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Broadcom's story, and we'll be grading the quality of that story in several ways:

• Growth: Are profits, margins, and free cash flow all increasing?
• Valuation: Is share price growing in line with earnings per share?
• Opportunities: Is return on equity increasing while debt to equity declines?
• Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Broadcom's key statistics:

BRCM Total Return Price data. Source: YCharts.

Source: YCharts. * Period begins at end of Q1 2011.

BRCM Return on Equity (TTM) data. Source: YCharts.

Source: YCharts. * Period begins at end of Q1 2011.

How we got here and where we're going
Broadcom's performance has deteriorated since last year, as the chipmaker finished with three out of nine possible passing grades in its second assessment -- half the passes it picked up in 2013. Net income has been trending in the wrong direction as the company's revenue has flatlined lately due to weakness in its mobile and wireless chip segments. Its deteriorating net income has also hampered several other metrics, but it's worth noting that the company's free cash flow remains strong, and has continued to grow quite a bit since we last put Broadcom through its paces. Will it be able to turn its sliding bottom line around in 2014? Let's dig a little deeper to find out.

Broadcom posted lower-than-expected revenue and earnings per share in its first-quarter results just last week. The company's wireless sales struggled with weak demand from smartphone manufacturers. Fellow Fool Mukesh Baghel points out that Broadcom seems to be losing market share to fellow chipmaker Qualcomm (QCOM 1.41%), which now claims a dominant share of roughly two-thirds of the overall cellular baseband chip market. Following the first-quarter disappointment, Piper Jaffray analyst Ruben Roy downgraded Broadcom to hold status, citing the potential for further mobile market share losses over the coming years. As its 4G baseband technology is still in the in early production stage, there's no clear way to say just how successful Broadcom will be in reclaiming its position from Qualcomm.

Fool Srdjan Bejakovic points out that Broadcom has enjoyed robust demand in its infrastructure and networking segment due to increased spending on data centers as companies move to cloud computing business models. China's ongoing LTE rollout should also be a major driver of Broadcom's top-line growth. According to Bloomberg, China Mobile will have more than 100 million LTE customers by the end of 2014. Broadcom recently acquired LTE-related assets from Renesas Electronics to catch up to Qualcomm in the emerging 4G LTE baseband market. Broadcom also expects to drive growth with its high-efficiency, video coding-enabled set-top box solutions for ultra-HD TV, as well as through VDSL modems and passive optical networking solutions.

Broadcom foresees strong demand in its DSL business with the launch of new designs in the upcoming quarter. The company also enjoyed impressive demand for its LTE small-cell solutions from more than 20 OEMs and operators worldwide. It also launched new energy-efficient global navigation satellite system (GNSS) systems-on-chips to power the wearable device market, which is expected to top $6 billion in global revenue by the end of 2018. Samsung's Galaxy smartwatches, the Gear 2 and Gear Fit, which are powered by Broadcom's SoCs, have racked up more than 800,000 unit sales in sales in just two months.

Putting the pieces together
Today, Broadcom has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.