In January 2000, fellow Fool Bill Mann showed up at the right place at the right time, calling Qualcomm's (NASDAQ:QCOM) top that still holds today. Shares had risen more than 25-fold in the prior year, becoming the poster child for what many now know as the years of irrational exuberance. Bill concluded that Qualcomm's share price was drastically inflated, discounting decades of growth.

More recently, in July 2003 Bill revisited Qualcomm and noted something that is often forgotten in investing: It is possible to love a company but hate the stock. In this case, Qualcomm's stock was trading around $37 per share at the time, valuing the company at just under $30 billion. More than three years after his initial assessment, Bill saw a Rule Maker in almost every measure, but the price of shares and the anemic state of the global telecom market still told him to look for greener pastures elsewhere.

Like Bill, I love the company but have long hated the stock. I've been bearish on Qualcomm's stock since the peak in early 2000, due to its inflated value relative to conditions I saw in the market. But my bearish tendencies were already fading by mid-2003 when I saw a different Qualcomm and a different market shaping up. Both were maturing -- Qualcomm has been steadily moving into new growth areas while the wireless sector had been recovering rapidly.

With recent market giddiness virtually eliminating the chance of finding undervalued stocks in the wireless sector and new opportunities for growth showing for Qualcomm, the stock looks to me to be one of the better wireless plays at this point. So let's delve into two major areas, answering the question of whether the stock is still "overpriced," and what future growth is reasonable to expect from the company.

What makes a stock expensive?
Calling a stock "cheap" and "expensive" is always relative. Cheap compared to what? Expensive compared to peer stocks, or expensive compared to some reasonable return on investment?

I still say Qualcomm stock is on the expensive side when held up against similarly sized companies. But the price is more moderate when referenced to the potential still packed in the wireless sector. By comparison, Qualcomm stock is also now more reasonably priced than many wireless peers. This was not the case 12 to 18 months ago when many other wireless plays were selling at a big discount. So if you're already diversified and determined to put a portion of your portfolio to work in the more risky wireless sector, I'd say Qualcomm is worth a look.

But with a current P/E over 50 and forward P/E in the mid-30s, how can investors not feel like they are overpaying for a great company like Qualcomm? Well, the P/E ratio doesn't tell the whole story -- we need to dig deeper. Matt Richey's recent article made an outstanding case for looking at elements of hidden value in companies. While Qualcomm is not necessarily a value play, the company's impressive cash flow and billions in cash distort the conventional picture of value.

I believe Matt's enterprise value-to-free cash flow ratio (EV/FCF) would be a good metric to apply to Qualcomm, a company that generates billions in cash flow each year and even now pays a dividend (though still small). With more than $5 billion in cash and equivalents, Qualcomm's enterprise value comes in roughly at $45 billion. Free cash flow for the trailing 12 months comes in at $1.7 billion, yielding a EV/FCF ratio of around 26.5 -- not bad compared to the S&P 500 average of 23.4. Certainly not cheap, but not out of the park.

The margins in Qualcomm's business have remained strong, and expanding business has led to a recent surge in income. Still, the company sees long-term stability in cash flow -- enough to fund a $1 billion stock repurchase plan and pay out more than $130 million in shareholder dividends. CEO Irwin Jacobs notes that Qualcomm has more than enough cash to fund research and development (R&D), and the excess would be best used by returning it to shareholders (when's the last time you ever had too much cash?).

To balance the optimism, though, keep in mind that Qualcomm's investment arm -- Qualcomm Strategic Initiatives (QSI) -- has been regularly eating cash. Investors shouldn't simply settle for a metric that looks at cash flow without looking at all areas of the business that can either consume or provide cash. The company's margins will likely come under increasing pressure in the future as well, so don't leave this scenario out of a more detailed analysis. Overall, however, I believe looking at Qualcomm's maturing business in this manner is much more accurate than simply buying and selling based upon a simple P/E.

Quantitative vs. qualitative
Investing in Qualcomm has rarely been a question of company performance -- it's been a question of the premium paid for that performance. The company has historically outperformed the market, and recent financial achievements continue to be well above par. After peaking in 1999 and declining for two years with the rest of the telecom market, double-digit revenue growth has returned and earnings have continued to grow as well.

Yet at the risk of sounding very foolish, I suggest that a quantitative analysis on Qualcomm only gets an investor so far. Not that prudent financial measures should be tossed aside or subverted to subjective guessing, but I firmly believe metrics must be looked at in a larger context. Even the exercise of looking at value in cash flow begs investors to question the quality of cash flow and expectations for its continuance. Certainly, we don't want to jump into a company based upon temporarily inflated cash flow from a variety of "onetime" items such as legal judgments or tax treatments.

I believe it's important, therefore, to look at Qualcomm's current position in its addressed markets and look at the potential for continued success in each area. This more qualitative look at the company and the industry should help an investor weigh the relative risks going forward. I think it's also important to play devil's advocate by looking at all the risks facing the company -- even remote risks. How do you know if an investment is solid unless you attempt to shoot a few holes in it?

So in part two, which will be published on April 8, I will suggest areas that I think are important to measure Qualcomm on a more qualitative basis. The emphasis will be on areas of the business where it generates significant income or has the potential to do so. We want to determine the likelihood that a particular stream of income will continue, diminish, or potentially expand. Then we should have a solid picture of risks vs. potential rewards in the stock -- the basis for a Foolish investment decision.

Fools on the Qualcomm discussion board dispense some of the best analysis of the company on the Web. Check out the details and join the discussion here.

Though he doesn't own shares in the company, Dave Mock wrote the book on Qualcomm -- literally. His corporate biography on the company, The Qualcomm Equation, will be published by AMACOM in the fall. Dave can be reached via email. The Motley Fool is investors writing for investors.