How Undervalued is Qualcomm Stock?

Since topping over $75 in September, Qualcomm (NASDAQ:QCOM) shares are starting to show signs that it bottomed. The valuations are compelling: the stock trades at a forward P/E of 13.5 times and rewards income investors a dividend yielding around 4.5%. How undervalued is that? Markets priced in worst case scenarios. And all Qualcomm needs for a stock rebound are two positive news events.

Resolving its case against Apple (NASDAQ:AAPL) is getting closer. CEO Steve Mollenkoph said on CNBC that its differences with the iPhone seller will get resolved by end of year or at the beginning of 2019. If Apple pays nothing, the stock should not react negatively. Investors are already valuing QCOM stock without any current or future royalties from Apple.

Therein lies the problem: if Qualcomm lets Apple get away from paying royalties, it creates a precedence with other phone makers to not pay, either. Qualcomm’s royalty business model will break, paying the way for the free use of its IP.

Your Takeaway

Apple’s $7 billion payment to Qualcomm is late. And it’s going to cost interest if Apple loses. Starting a small position in QCOM stock ahead a settlement will pay off. The courts might side with Qualcomm, an outcome few expect will happen.