My best 5G stock to buy in October


The novel coronavirus pandemic has failed to shake up Qorvo‘s (NASDAQ: QRVO) momentum in 2020 as the chipmaker continued to benefit from the rollout of 5G (fifth generation) wireless networks and smartphones supporting the new networking standard.

The company’s shares have climbed about 50% in the past six months and about 69% in the past year. But investors who have missed this train of sauce so far should not be disappointed, as Qorvo stock looks poised to offer more potential. Here are some of the reasons why this is a great 5G stock to buy in October.

QRVO given by YCharts

Qorvo takes off …

Qorvo management last month increased its profit and revenue guidance for the second quarter of fiscal 2021 as mobile chip application exceeded the company’s expectations. The company now expects revenue of $ 1 billion to $ 1.03 billion this quarter, as well as earnings of $ 2.14 per share. Qorvo’s initial forecast, released in July, forecasted earnings of $ 1.90 per share on revenues of between $ 925 million and $ 955 million.

Qorvo’s updated forecast for the September quarter means the company could deliver nearly 26% year-on-year revenue growth from $ 807 million in revenue for the year last. EPS growth could reach nearly 41%, up from $ 1.52 per share a year ago. Qorvo expects 50% non-GAAP gross margin for the quarter, which would be a nice increase from the previous year’s period reading of 46.5%.

The impressive growth of these metrics should be enough to justify Qorvo’s valuation. The stock has a trail price / earnings ratio (P / E) by almost 41, while a forward price / earnings ratio by only 19 points towards an increase in the company’s future profits.

More importantly, Qorvo’s 5G catalyst is just getting started. What may seem like a rich valuation could turn out to be a good deal in the future as the world moves towards new smartphone technology that Qorvo is well positioned to exploit.

Person holding 5G smartphone.

Image source: Getty Images

… and there is room to fly higher

Strategy Analytics estimates that 5G smartphone sales could reach 250 million units in 2020, down from just 18 million units last year. The company also specifies that Apple, Samsung, and Huawei could capture two-thirds of 5G smartphone sales this year, which is good for Qorvo as it counts them all as customers.

The chipmaker has reduces his dependence on Huawei, which should protect it from sanctions imposed by the United States on the Chinese smartphone giant. However, Qorvo gets 33% of its revenue from supplying chips to Apple, while Samsung has used the company’s 5G chips in its latest Galaxy S20 smartphones.

Samsung dominated the 5G smartphone market in the United States earlier this year, with the Galaxy S20 + accounting for 40% of total shipments. Meanwhile, Apple would be prepare to build 75 to 80 million 5G iPhones by the end of 2020.

Additionally, the impressive momentum witnessed by 5G smartphones in 2020 is expected to continue into the coming years, with one billion devices expected to ship by 2025 according to Strategy Analytics. It’s worth noting that 5G devices are expected to account for half of all smartphones shipped globally by 2025, indicating that Qorvo may be sitting on a multi-year catalyst.

Qorvo also sees 5G smartphones creating an additional revenue opportunity of $ 5 to $ 7 per device. Given that the chipmaker made nearly 60% of its revenue from selling mobile chips in the last quarter, the advent of 5G should ideally prove to be a huge tailwind for the company. Qorvo could benefit from higher shipping volumes and higher revenue per 5G smartphone in the coming years – a combination that could make it a best 5G stocks.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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