In-Depth Analysis: Broadcom Versus Competitors In Semiconductors & Semiconductor Equipment Industry

In today's rapidly evolving and fiercely competitive business landscape, it is crucial for investors and industry analysts to conduct comprehensive company evaluations. In this article, we will undertake an in-depth industry comparison, assessing Broadcom AVGO alongside its primary competitors in the Semiconductors & Semiconductor Equipment industry. By meticulously examining crucial financial indicators, market positioning, and growth potential, we aim to provide valuable insights to investors and shed light on company's performance within the industry.

Broadcom Background

Broadcom is the sixth-largest semiconductor company globally and has expanded into various software businesses, with over $30 billion in annual revenue. It sells 17 core semiconductor product lines across wireless, networking, broadband, storage, and industrial markets. It is primarily a fabless designer but holds some manufacturing in-house, like for its best-of-breed FBAR filters that sell into the Apple iPhone. In software, it sells virtualization, infrastructure, and security software to large enterprises, financial institutions, and governments.Broadcom is the product of consolidation. Its businesses are an amalgamation of former companies like legacy Broadcom and Avago Technologies in chips, as well as Brocade, CA Technologies, and Symantec in software.

When conducting a detailed analysis of Broadcom, the following trends become clear:

• At 30.12, the stock's Price to Earnings ratio is 0.3x less than the industry average, suggesting favorable growth potential.

• The elevated Price to Book ratio of 23.12 relative to the industry average by 3.2x suggests company might be overvalued based on its book value.

• With a relatively high Price to Sales ratio of 11.54, which is 1.3x the industry average, the stock might be considered overvalued based on sales performance.

• The company has a higher Return on Equity (ROE) of 14.98%, which is 8.77% above the industry average. This suggests efficient use of equity to generate profits and demonstrates profitability and growth potential.

• The company has lower Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $4.91 Billion, which is 0.21x below the industry average. This potentially indicates lower profitability or financial challenges.

• The gross profit of $6.16 Billion is 0.33x below that of its industry, suggesting potential lower revenue after accounting for production costs.

• With a revenue growth of 4.87%, which surpasses the industry average of 1.93%, the company is demonstrating robust sales expansion and gaining market share.

Debt To Equity Ratio

The debt-to-equity (D/E) ratio is an important measure to assess the financial structure and risk profile of a company.

Considering the debt-to-equity ratio in industry comparisons allows for a concise evaluation of a company's financial health and risk profile, aiding in informed decision-making.

When comparing Broadcom with its top 4 peers based on the Debt-to-Equity ratio, the following insights can be observed:

• Broadcom has a relatively higher debt-to-equity ratio of 1.78 compared to its top 4 peers.

• This could indicate a higher financial risk as the company is more reliant on borrowed funds, and investors may perceive it as a potential concern.

Key Takeaways

Broadcom's low PE ratio suggests that it may be undervalued compared to its peers in the Semiconductors & Semiconductor Equipment industry. However, its high PB and PS ratios indicate that the market may be overvaluing the company's assets and sales. On the other hand, Broadcom's high ROE and revenue growth suggest strong profitability and potential for future growth. However, its low EBITDA and gross profit indicate lower operational efficiency compared to its industry peers. Overall, Broadcom's valuation analysis suggests a mixed picture, with potential undervaluation in terms of earnings but potential overvaluation in terms of assets and sales.

This article was generated by Benzinga's automated content engine and reviewed by an editor.