Qualcomm Shares Show Signs Of Life

Qualcomm, Inc. QCOM bulls have been rewarded recently with some nice gains (+15 percent since the February 2 low) recently. But that only partially made up for the miserable -25 percent performance from July 2014 to the February low.

Can the company execute well enough to provide the stock the fuel needed to continue higher?

What The Bulls See

• Some reasonable valuation metrics: A P/E of around 15 that seems cheap as compared to the S&P's P/E of over 22 and a reasonable price-to-sales ratio of 4.41.
• Huge profit margins of approximately 30 percent, which spin off positive levered free cash flow of $5.54 billion annually
• A pristine balance sheet: Cash of $17.70 billion versus zero debt, a current ratio of 3.55 and a debt-to-equity ratio of 0 percent.

What The Bears See

• Some pricey valuation metrics: The 15 P/E seems expensive when compared to the company's estimated revenue growth of 4.9 percent and the estimated EPS growth of 7.5 percent, a market capitalization of $119.61 billion versus an estimated enterprise value of $101.82 billion and a slightly rich price-to-book ratio of 3.07.

The Technical Take

Technicians note that Qualcomm shares have been victims of several downside gaps in the last year, the last of which was filled by the most recent rally in the stock. The next level of resistance created by the upper edge of the next downside gap comes in at $77.20. Above that level, the next gap would be filled if the stock made it up to $81.60. The first support for the stock of $68.16 comes in at the lower edge of an upside gap that occurred on February 9-10.

Overall

Qualcomm may be in recovery mode for the bulls. The stock could pull back to the $68.16 level if the market continues to consolidate the recent gains. At that point, the label of the entry would be "high reward/low risk" according to the technicians.