BROADCOM INC (NASDAQ:AVGO) – A Quality Stock with Strong Fundamentals

BROADCOM INC (NASDAQ:AVGO) stands out as a potential candidate for quality investors, meeting key criteria from our Caviar Cruise stock screen. The company demonstrates strong revenue and profit growth, high returns on capital, and solid financial health, making it a compelling choice for long-term investors.

Why AVGO Fits the Quality Investing Criteria

• Revenue and EBIT Growth: Over the past five years, AVGO has delivered an impressive revenue growth rate of 18.41% annually, while EBIT growth has been even stronger at 29.07%. This indicates improving profitability and operational efficiency.
• High Return on Invested Capital (ROIC): With an ROIC (excluding cash and goodwill) of 4580.5%, the company generates exceptional returns on its capital investments, a hallmark of a high-quality business.
• Strong Profit Quality: AVGO’s five-year average profit quality stands at 248.47%, meaning it converts net income into free cash flow at an outstanding rate. This suggests earnings are backed by real cash generation.
• Manageable Debt Levels: The debt-to-free cash flow ratio of 2.96 indicates AVGO could repay its debt in under three years using current cash flows, reflecting financial stability.

Fundamental Analysis Summary

Our fundamental report assigns AVGO a score of 6 out of 10, with strengths in profitability and growth but some concerns around valuation and liquidity. Key takeaways:

• Profitability: AVGO excels with high margins (gross margin of 66.35%, operating margin of 37.91%) and strong returns on equity (18.56%).
• Growth: Past and projected growth remain robust, with analysts expecting 23.12% annual EPS growth and 18.41% revenue growth.
• Valuation: The stock trades at a premium (P/E of 42.81), which may be justified by its growth and profitability but warrants caution.
• Dividend: While the yield is modest (0.92%), the dividend has grown at 16.17% annually over the past decade.

For investors seeking high-quality companies with durable competitive advantages, AVGO’s strong fundamentals make it worth further consideration.

Our Caviar Cruise screener lists more quality stocks and is updated regularly.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own analysis before making investment decisions.