Deep Pullbacks are Not a Novelty for QUALCOMM's (NASDAQ:QCOM) Investors

Between the 5g rollout and the semiconductor melt-up, there were plenty of reasons why QUALCOMM Incorporated ( NASDAQ: QCOM ) stock did so well in the last 2 years.

Yet, with the shrinking globalization and growing political turbulence around the world, the optimism for the sector seems to be on the decline.

Check out our latest analysis for QUALCOMM

Severe Pullbacks are the Norm

While our data show that QUALCOMM is not more volatile than its industry, those who don't dabble in the Semiconductor industry might be surprised by the magnitude of those moves.

Currently, the stock is down over 25% from the highs, but this magnitude of the correction is not concerning given its past.

For example, looking around 2 years in the past:

• Q1 2020: -37% peak to trough
• Q1 2021: -27% peak to trough
• Q3 2021: -20% peak to trough

The ongoing decline is not a reason for panic but rather a regular occurrence for QUALCOMM investors that they have to accept.

Dividend Continues the Upward Trajectory

The company announced a dividend hike, a 10.3% increase from the prior dividend. Now it pays US$0.75/share per quarter, or US$3 annually. The current dividend yield is 2.1%, which is above the industry average of 1.5%.

With the reasonably low payout ratio (30%), the investors can expect more dividend hikes in the future.

How Strong Is QUALCOMM's Balance Sheet?

The balance sheet is the prominent place to start when analyzing debt levels . But ultimately, the future profitability of the business will decide if QUALCOMM can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

The latest data shows that QUALCOMM had liabilities of US$12.3b due within a year, and liabilities of US$19.2b falling due after that.Offsetting these obligations, it had cash of US$11.3b as well as receivables valued at US$4.03b due within 12 months.So its liabilities total US$16.1b more than the combination of its cash and short-term receivables. Given QUALCOMM has a market capitalization of US$159.2b, it's hard to believe these liabilities pose much threat.

To size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover).Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

QUALCOMM has a low net debt to EBITDA ratio of only 0.35.And its EBIT covers its interest expense a whopping 26.2 times over. On top of that, QUALCOMM grew its EBIT by 44% over the last twelve months, and that growth will make it easier to handle its debt.

Conclusion

While it is not unusual for this stock to experience double-digit pullbacks, we have to notice that with a 20% correction, NASDAQ is officially in the bear market territory. This might not mean a lot to retail investors who look for absolute returns. Still, it means a lot to institutional investors looking for relative returns - benchmarking their results against the broad market.

Although QUALCOMM carries some debt, over the last 3 years, it also recorded free cash flow worth 76% of its EBIT, which is around average, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Finally, not all investment risk resides within the balance sheet - far from it. For example, we think you should know that QUALCOMM has 3 warning signs (and 1 shouldn't be ignored) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks , today.

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article 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.