Please ensure Javascript is enabled for purposes of website accessibility

This 5G Stock Should Be on Your Buying List

By Harsh Chauhan - Feb 5, 2020 at 8:29AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Growing demand for 5G smartphones could send Qorvo stock higher this year.

The latest quarterly report from Qorvo (QRVO 3.61%) cemented its credentials as a top stock to play the 5G (fifth-generation) wireless network boom. The chipmaker's fiscal 2020 third-quarter results blew past Wall Street's expectations thanks to demand for its 5G smartphone chips and infrastructure solutions.

More importantly, a reading of Qorvo's guidance suggests the company looks all set to sustain its impressive momentum. It expects revenue between $800 million and $840 million in the fourth quarter, and its annual revenue growth will be an impressive 20% at the mid-point of that guidance range. What's more, the company predicts a non-GAAP gross margin of 48.5% in the current quarter, which would be a slight bump over the year-ago period's gross margin of 48.2%.

But this could be just the beginning for Qorvo -- the company's financial performance could get even better as 2020 progresses. Here's why.

Person holding a 5G smartphone.

Image source: Getty Images

Qorvo is just getting started

Qorvo's mobile business supplied 76%, or $662 million, of its total revenue. The chipmaker says that its mobile business turned in a better-than-expected performance on the back of 5G demand from Asian customers. More specifically, Qorvo recorded an annual growth of 10% in its mobile business last quarter. That is impressive considering that the same business was struggling to pick up the pace a year ago thanks to weakness at one of Qorvo's key customers -- Apple (AAPL 0.17%).

But Apple's sales have picked up the pace since the launch of the iPhone 11. The smartphone giant has reportedly been ordering more components from its suppliers to meet the strong demand for the device. That could be one reason why Qorvo's mobile division outperformed its own expectations last quarter, as the chipmaker reportedly gets a third of its revenue by supplying connectivity chips to Apple.

Looking ahead, Qorvo could win big from its relationship with Apple this year as the latter brings out its 5G smartphones and an entry-level device to capture a larger market share. Supply chain sources quoted by PhoneArena indicate that Apple has reportedly started the pilot production of a budget iPhone that will be priced at $399.

The entry-level smartphone is expected to enter mass production in mid-February, with Apple reportedly planning to produce 30 million units of the device. This should give Qorvo another shot in the arm thanks to its strong relationship with Apple.

But that's not where Qorvo's tailwinds end. The chipmaker sees solid potential in the 5G smartphone market as a whole, as evident from CEO Bob Bruggeworth's statement on the latest earnings conference call:

Consistent with what we said last quarter, we continue to expect approximately 300 million 5G handsets in calendar year '20, adding approximately $2 billion to the mobile RF TAM [Total Available Market].

Qorvo has generated just over $3.1 billion in revenue over the past year, and 5G smartphones could give the chipmaker's business a nice shot in the arm this year, as the total addressable opportunity pointed out by the company indicates.

The best part is that Qorvo is looking beyond Apple to take advantage of the 5G smartphone opportunity. The company claims to have "secured multiple design wins to supply low-, mid-, high and ultrahigh band solutions for next-generation 5G smartphones." Qorvo's mobile business has a nice tailwind in the form of 5G smartphones this year, and this bodes well for the company's overall financial performance given that the mobile business drives the majority of the company's revenue.

Qorvo looks all set to exceed expectations

Qorvo has given a solid outlook for the current quarter, and it wouldn't be surprising to see the company sustain the same through the remainder of the year as 5G smartphones arrive. But Wall Street continues to remain conservative in its forecast.

Analyst estimates compiled by Yahoo! Finance predict mid-single-digit jumps in Qorvo's top line in the current fiscal year and the next one. But the ongoing quarter's outlook clearly indicates that Qorvo can do much better than that. That's why, at 16 times forward earnings, Qorvo could turn out to be a top growth pick for investors looking to take advantage of the 5G smartphone revolution.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Qorvo, Inc. Stock Quote
Qorvo, Inc.
$108.61 (3.61%) $3.78
Apple Inc. Stock Quote
Apple Inc.
$137.59 (0.17%) $0.24

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.