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Buy This Top 5G Stock in February

By Harsh Chauhan - Feb 12, 2021 at 8:15AM

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This chipmaker has stepped on the gas thanks to 5G smartphones, and it could get better.

Qorvo (QRVO -1.77%) sizzled on the stock market in 2020 as its mobile business regained its mojo on the back of growing demand for 5G-network-enabled smartphones. Shares of the radio-frequency chip specialist doubled in value within the space of a few months in 2020, and it looks all set to repeat that terrific performance this year as well.

Qorvo's latest quarterly results and guidance blew past expectations and give us a glimpse of the big catalysts it is sitting on. Let's take a closer look at the reasons why 2021 could turn out to be another outstanding year for investors in this top 5G stock.

Qorvo is winning big from 5G smartphones, and it will keep doing so

Qorvo's revenue for the third quarter of fiscal 2021 (ending on Jan. 2, 2021) increased 26% year over year to nearly $1.1 billion. Adjusted earnings increased to $3.08 per share during the quarter, from $1.86 per share a year ago.

Hand holding  smartphone with 5G floating over it

Image source: Getty Images.

These numbers were better than Wall Street's expectations of $2.68 per share in earnings on revenue of $1.07 billion as Qorvo's biggest customers -- Apple (AAPL -1.72%) and Samsung -- launched their latest 5G smartphones during the quarter. Apple, for instance, delivered a record-setting quarter on the back of the hugely successful iPhone 12 launch that catapulted the company to the top of the smartphone sales rankings in the fourth quarter of 2020, according to IDC.

Apple exited the quarter with 90.1 million shipments, up 22.2% from the prior-year period. Qorvo was in a solid position to take advantage of this growth, as Apple accounts for 33% of the chipmaker's revenue. What's more, this reliance on Apple is going to be a tailwind for Qorvo, as the iPhone maker is expected to dominate the fast-growing 5G smartphone space in 2021.

However, Apple is not the only factor that's boosting Qorvo. The mobile business generated $826 million in revenue for the chipmaker last quarter, accounting for 75% of the total revenue. That translates into a 25% spike over the prior-year period's mobile revenue of $662 million. Qorvo's mobile business is diversified and Apple is one of the many cogs in the wheel, albeit an important one.

The chipmaker also counts Android smartphone OEMs (original equipment manufacturers) as clients and pointed out on the latest earnings conference call that it has "secured new design wins for our next generation complete main path solutions in support of upcoming Android 5G launches." This puts Qorvo in a stronger position to take advantage of the transition to 5G smartphones.

Qorvo estimates that 500 million 5G smartphones could be sold in 2021, compared to 250 million units last year, and its supplier relationship with multiple OEMs improves the company's chances of making the most of this tremendous growth. Additionally, Qorvo management points out that 5G smartphones present a bigger revenue opportunity per unit:

Within these phones, the front-end content is increasing $5 to $7 [per phone] versus 4G, including in the mid-tier where content can approximately double. The addition of 5G is driving a shift from discrete products to higher value content including our highly integrated solutions.

The additional content opportunity in 5G devices is the reason why Qorvo's margins are moving north at an impressive pace. The chipmaker's non-GAAP gross margin increased 5.1 percentage points year over year to 54.4% last quarter. The good part is that 5G smartphones reportedly accounted for 20% of the global smartphone market in 2020. They are expected to account for two-thirds of global smartphone shipments in 2023 as per Counterpoint Research, indicating that Qorvo still has a lot of room to expand its margins.

Why you should be buying

Qorvo's fiscal 2021 fourth-quarter guidance calls for revenue between $1.025 billion and $1.055 billion and adjusted earnings of $2.42 per share. The chipmaker's revenue would jump 32% year over year at the midpoint of that guidance range. Non-GAAP earnings would also increase significantly as compared to the year-ago period's figure of $1.57 per share.

So, Qorvo's revenue growth rate is on track to improve in the current quarter. Don't be surprised to see this trend continue in the forthcoming quarters as well. That's why investors looking to take advantage of the booming 5G smartphone market shouldn't miss out on Qorvo. Its prospects are looking up and the stock is trading at an attractive 17 times forward earnings, making it a good bet for investors looking to buy a growth stock at a reasonable valuation.

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Stocks Mentioned

Qorvo, Inc. Stock Quote
Qorvo, Inc.
$102.95 (-1.77%) $-1.86
Apple Inc. Stock Quote
Apple Inc.
$144.58 (-1.72%) $-2.53

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