Is Broadcom’s Value Keeping Pace With Its 109% Stock Surge?

• If you have ever wondered whether Broadcom’s stock is still a bargain or if the price has raced ahead of its value, you’re in the right place. Let’s put its current worth under the microscope.
• The stock’s impressive run has continued, with a 46.7% jump year-to-date and a massive 109.2% gain over the last year. However, there has been a slight dip of 0.7% in the past week.
• Much of the recent price movement has been fueled by ongoing buzz around the semiconductor sector and Broadcom’s headline-grabbing acquisition strategies. In particular, market watchers have reacted to Broadcom’s role in driving innovation within AI infrastructure and ongoing industry consolidation.
• When it comes to valuation, Broadcom currently scores 0 out of 6 on our undervaluation checks. That’s just one way to size up a stock. Next, we’ll walk through the main approaches to valuing Broadcom, with a deeper dive into the smartest way to use these numbers to inform your decision.

Broadcom scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Broadcom Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the value of a business by projecting its future cash flows and discounting them back to today’s value. This approach helps investors assess whether a stock’s current price reflects its future earnings potential.

For Broadcom, the most recent Free Cash Flow (FCF) reported is $24.8 billion. Analysts forecast substantial growth, with projected FCF reaching $94.1 billion by 2029. It is worth noting that while professional analysts supply estimates for the next five years, longer-term figures are extrapolated using in-house models. The projection shows FCF rising steadily year by year, signaling expectations for continued expansion.

After analysis, Broadcom's DCF model calculates an intrinsic share value of $300.18. Comparing this to the current share price, the stock is considered to be 13.3% overvalued according to this method. In other words, the market price is noticeably ahead of what future cash flows suggest the company is worth today.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Broadcom may be overvalued by 13.3%. Discover 927 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Broadcom.

Approach 2: Broadcom Price vs Earnings (PE Ratio)

The price-to-earnings (PE) ratio is widely used to value profitable companies because it directly compares a company's stock price to its earnings per share, helping investors assess how much they are paying for each dollar of profits. For stable, earning-growing businesses like Broadcom, the PE ratio offers a clear picture of how the market values its current and future profitability.

Growth expectations and risk play important roles in determining what counts as a "normal" PE ratio. Companies with strong earnings growth and lower risk often trade at higher PE ratios, reflecting investor optimism. Meanwhile, riskier or slower-growing firms tend to have lower PE ratios.

Currently, Broadcom trades at a PE ratio of 85.4x, which stands out against the semiconductor industry average of 33.7x and the peer group average of 52.1x. On the surface, Broadcom appears much more expensive than its competitors based on this metric alone.

Simply Wall St's proprietary "Fair Ratio" for Broadcom is 67.2x. Unlike a simple comparison with peers or the industry, the Fair Ratio considers key factors such as Broadcom’s earnings growth, profit margins, industry dynamics, company size, and risk profile. This provides a more nuanced and accurate benchmark for what Broadcom's valuation rightly should be.

With the current PE of 85.4x notably above the Fair Ratio of 67.2x, Broadcom's shares are trading at a premium compared to our holistic assessment of fair value using the PE ratio approach.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1430 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Broadcom Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a simple but powerful tool that lets you frame your investment decision as a story. You state your view of the business’s future, your expectations for Broadcom’s earnings, revenue and margins, and see how those assumptions translate directly to an estimated fair value.

Narratives help you connect the headline story with the numbers, linking your perspective about Broadcom’s industry position, risks, and opportunities to a concrete financial forecast and ultimately to your own fair value estimate. They are easy to create and update, thanks to the handy Narratives tool available right on Simply Wall St’s Community page, used by millions of investors.

By building your Narrative, you can compare your personalized fair value for Broadcom to its current market price and decide whether it is the right time for you to buy, hold or sell. Plus, Narratives adjust dynamically whenever new information is released, such as news, analyst reports or company earnings, so your insights always reflect the latest outlook.

For example, one investor might believe Broadcom’s AI partnerships and new product launches will drive rapid growth (setting a fair value as high as $415.56), while another may be concerned about competitive risks and assign a much lower value ($218.00). Your job is to decide which Narrative fits your outlook best.

Do you think there's more to the story for Broadcom? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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