Qorvo: Why you should Buy this Beaten Down Apple Supplier

Qorvo’s (QRVO) stock has plummeted as much as 50% from its all-time highs. Due to the company’s weak guidance for Q3, shares have taken a beating. Investors are cautious about the company’s business in China due to the slowdown in Chinese economy. However, I believe the sell off was blown way out of proportion.

Both RF Micro Devices and TriQuint had been beating analysts’ estimates regularly before the companies merged into Qorvo. And Qorvo too had a great run thanks to strong sales of Apple’s (AAPL) iPhone 6 and iPhone 6 Plus.

While the company may have slashed their guidance, the stock’s fall is overblown and provides a buying opportunity for long-term investors.

Moreover, I am skeptic about the company’s guidance as most of its key customers have not witnessed any slowdown in business over the last few months. Even the likes of Nike and Apple delivered strong growth due to their business in China. So I think the company is being overly conservative with its guidance and will move higher in the coming days, making it an ideal pick.

Although the chipmaker hasn’t gained dollar content in Apple’s new iPhone 6S and 6S Plus, the company should still witness strong growth thanks to the surging sales. As per Fortune, many analysts are expecting the new iPhones to surpass the 74.5 million mark set by the preceding iPhones, and this will be a tailwind for suppliers like Qorvo. In the report, Fortune said:

“All but two of the professional analysts we’ve heard from believe Apple will beat last year’s record 74.5 million iPhone sales. But not by much. The panel’s average estimate of about 78 million iPhones represents 4% growth, but it’s been lifted by the exuberance of a few congenitally bullish amateurs. On average, the amateurs expect iPhone unit sales to grow 9.5%. The consensus among the pros is an anemic 2%.”

With both Apple and Qorvo’s earnings due in the next few days, investors should consider buying the chipmaker at a beaten-down valuation.

Conclusion

Qorvo may be conservative about its business in China, but there are no signs of weakness. The company’s customers haven’t witnessed any weakness, and Apple sales are also expected to surpass last year’s levels. With the company trading nearly 50% below its all-time highs, I think investors should buy the stock going into earnings. Qorvo is trading at 9x forward earnings, which is cheap if you take a look at the chipmaker’s expected growth.

Besides, the company has a well-diversified business model that will help it offset any future slowdown in the Chinese business. Although investors are right to be concerned about the company’s slashed guidance, I think the fears in China are widely overestimated. In my opinion, Qorvo is in deep-value territory and is a buy at present levels.

Published on Oct 27, 2015
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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