Margins matter. The more Qualcomm
Here's the current margin snapshot for Qualcomm over the trailing 12 months: Gross margin is 66.5%, while operating margin is 34.4% and net margin is 27.6%.
Unfortunately, a look at the most recent numbers doesn't tell us much about where Qualcomm has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for Qualcomm over the past few years.
Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.
Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. Here's how the stats break down:
- Over the past five years, gross margin peaked at 70.9% and averaged 69.7%. Operating margin peaked at 35.4% and averaged 34.0%. Net margin peaked at 37.2% and averaged 27.8%.
- TTM gross margin is 66.5%, 320 basis points worse than the five-year average. TTM operating margin is 34.4%, 40 basis points better than the five-year average. TTM net margin is 27.6%, 20 basis points worse than the five-year average.
With recent TTM operating margins exceeding historical averages, Qualcomm looks like it is doing fine.
- Add Qualcomm to My Watchlist.
Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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