One of the great aspects of model price is reading the financial press. We love to cross reference, if you will, recommendations made by analysts’ and journalists alike. This morning in the LEX column, in the Financial Times, there is a write up on Qualcomm (QCOM). The article doesn’t literally say, BUY, of course, but it does suggest you would be an idiot not to own shares in the company, in a subtle way.
So let’s have a look at the QCOM model price chart.
Qualcomm with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of QCOM subsequent to this post will be maintained on Facebook, here.
What caught our eye in the article is the review of the fundamental data. Comparing price earnings multiples to Apple. Dividend yield, payout ratio, and cash on the balance sheet. All of which sounds reasonable and leads one to believe QCOM is mispriced. This is where model price comes into play. All the fundamental data listed above is in the calculated math on model price. Is there mispricing in the market of QCOM shares that the LEX people suspect? Not according to model price. As one can see the shares of QCOM are fully valued when compared to model price. Let’s do one better, we can calculate model price one year out, March 6, 2013, at $68.63. This implies a gain of 13%. Add in the dividend of 1.62% and total rate of return prospects are 14.6%. Good, but certainly there are better gains elsewhere.
I feel better now. I know what QCOM is worth.
In a previous blog we suggest the “rational investor” has to be constantly comparing “what something costs” versus “what something is worth”. Model price gives you the calculation of what QCOM is worth even though antidotal fundamental evidence suggests otherwise.
If the markets were to correct, and QCOM market price went to a discount to model price or better yet went to EBV+4, QCOM, we agree, would be a great buy to the “rational investor”.