Ok, you're asking a shortterm question: whether any company can sustain a PE of 50 in today's (and tomorrow's) market.
The short answer is: I don't know.
Let me expand on that.
The available and important evidence is:
1. QCOM peaked 20 months ago. The Nas peaked 16 months ago. The stock and the sector have had repeated waves of selling, the telecom sector has gone severely out of favor, and yet QCOM has managed to maintain a PE in the 50s or higher.
2. We are currently into the death of the third bear rally of this bear market. While lots of other quality stocks are hitting new multi-year lows, QCOM is still comfortably above the 4/00 low, and almost exactly where we were at the 7/00 bottom. After the initial plunge off the BubbleTop, QCOM has consistently shown relative strength, compared to other telecom equip/component companies, compared to other Gorillas, and compared to the Nas. I can think of good reasons why QCOM should be a lot lower than it is now, but the pattern is: it holds up while others collapse.
3. investors seem to be willing to value QCOM on pro forma, not GAAP, earnings. Again, I can think of good reasons why GAAP should be used, but, since investors have been willing to ignore the "one-time" events for the last 20 months, it is reasonable to think they might continue to do so, for the next 20 months.
4. China is the one big market on the planet where consumer demand is likely to be sustained, and QCOM has important and near-term growth prospects in that market. Again, I must note that China has played Lucy to QCOM's Charlie Brown, too many times to count. (CDMA being the football)
5. Of all areas of tech, wireless seems to be holding up as well as anything. Yes, that is faint praise. But, in a relative way, when investors bail on CSCO and JDSU and INTC and LU and so on, and look for companies with predictable (pro forma) earnings growth, QCOM makes the short list.
6. There are beginning to be some tentative signs that the economy is bottoming; the Fed may just barely manage to pull the rabbit out of the hat. I kept on expecting inflation to get above the RedFlag 4% level, and it hasn't happened. I kept on expecting consumer spending to go the way of business spending, and it hasn't happened. The max impact of the Fed rate cuts will be felt by 10/02 (18 months from the mid-point of the rate-lowering period). The rate lowering has already been faster and more than Greenspan has ever done before. Stocks are up, a year after rate cuts begin, every example in the last 60 years. By 6 months before 10/02, stocks should be anticipating the economic upturn. I want to anticipate that anticipation, so.......I'm buying now, while holding back cash in case stocks get 30-50% cheaper.
JS@ireallydon'tknow.com |
