For investors looking to find stocks trading below their estimated true worth, a systematic screening process is important. One method uses filters for companies that show a high fundamental valuation score, meaning they are priced low compared to important measures, while also holding fair scores in profitability, financial condition, and growth. This method tries to find possible chances where the market might be setting too low a price on a company's assets and earnings ability, a central idea of value investing. By concentrating on these joined standards, investors can search for stocks that are not only low in price statistically but are also supported by a fairly good operational and financial base.
One stock that recently appeared from this kind of "fair value" screen is Qorvo Inc (NASDAQ:QRVO). The semiconductor solutions company, which provides radio frequency, connectivity, and power management chips for areas including smartphones, automotive, and industrial uses, shows a profile that fits this search for quality available at a low price.
An Interesting Valuation View
The most noticeable part of Qorvo's fundamental report is its valuation rating, which gets a high 8 out of 10. This score implies the stock is priced in an appealing way compared to both its industry group and the wider market. A close look at the numbers shows the reason:
- Price-to-Earnings: With a P/E ratio of 12.55, QRVO is valued at a lower price than about 96% of its group in the Semiconductors & Semiconductor Equipment industry, where the average P/E is above 75. It also trades at a large discount to the S&P 500 average P/E of almost 28.
- Forward-Looking Measures: The valuation argument remains when looking forward. The company's Price/Forward Earnings ratio of 12.42 is lower than about 94% of its industry rivals.
- Cash Flow and EBITDA: The stock also seems low-priced based on cash flow and operating earnings. Its Price/Free Cash Flow and Enterprise Value/EBITDA ratios are each lower than over 93% of industry peers.
For a value investor, these numbers are important. They form the numerical beginning point for spotting a possible difference between market price and true value. A low P/E or P/FCF ratio can signal the market is using a negative discount on a company's future earnings or cash production, possibly creating a buffer for safety.
Financial Condition Offers a Steady Base
Value investing ideas stress the need for a company's financial soundness to endure economic changes and steer clear of the dangers of a "value trap." Qorvo's financial condition rating is a firm 7, pointing to a strong balance sheet that backs its low-priced standing.
- Good Liquidity: The company shows very good short-term financial adaptability, with a Current Ratio of 3.67 and a Quick Ratio of 2.89. These numbers, which are better than over 60% of industry peers, suggest QRVO has sufficient means to meet its near-term responsibilities.
- Controlled Debt: While its Debt/Equity ratio of 0.42 is higher than some rivals, it stays at a level that implies the company is not too dependent on debt funding. More significantly, its Debt to Free Cash Flow ratio of 2.60 is good, indicating it could in theory pay off all its debt in less than three years using its present FCF, a mark of high ability to pay debts.
This financial steadiness is a key filter in a value screen. A low-priced stock with weak financial condition holds a high chance of lasting loss of capital if the company meets trouble. A sound balance sheet gives the strength needed for an investor's idea to develop over time.
Profitability and Growth: The Mechanism for Value Achievement
A low-priced stock must also show the basic ability to increase its worth. Qorvo's profitability rating of 6 and growth rating of 4 show a company with competent, though presently subdued, operations.
- Fair Returns: The company's Return on Equity (9.21%) and Return on Invested Capital (7.12%) both do better than about 70% of its industry peers. Its Profit Margin of 9.11% is also above the industry middle point.
- Earnings Movement: A noticeable good point is the 17% growth in Earnings Per Share over the last year. While revenue growth has been level lately, analysts predict a speed-up, with EPS projected to grow at an average rate of 9% each year in the next few years. This predicted betterment in growth rate is a good sign for value investors, as it hints the company's earnings ability may be turning upward, which could help narrow the valuation difference.
These elements are important because valuation multiples by themselves are empty if a company's profits are in lasting decrease. Fair profitability and the possibility of returned growth supply the potential trigger for the market to reprice the stock upward, achieving the value currently placed in its low price.
Is Qorvo a Value Chance?
Based on the fundamental examination, Qorvo presents a case that fits a systematic value-seeking plan. It trades at a large discount to its industry, has a strong and liquid balance sheet that lowers risk of loss, and keeps profitability measures that are competitive within its field. The expected renewed speed-up of earnings growth might act as the trigger for a new valuation.
For investors using a value-focused method, the mix of low valuation multiples, financial toughness, and operational ability makes QRVO a candidate deserving of more detailed study. A thorough look at the complete fundamental examination report for Qorvo Inc can be seen here.
Interested in screening for more possible value chances? You can review other stocks that fit similar standards of good valuation together with fair fundamentals using the Fair Value Stocks screen on ChartMill.
Disclaimer: This article is for information only and does not form financial advice, a suggestion, or an offer or request to buy or sell any securities. The information given is based on supplied data and should not be the only ground for any investment choice. Investors should do their own separate research and talk with a qualified financial advisor before making any investment.
