The past six months have been a windfall for Broadcom’s shareholders. The company’s stock price has jumped 95%, setting a new 52-week high of $370.60 per share. This performance may have investors wondering how to approach the situation.
Is it too late to buy AVGO? Find out in our full research report, it’s free.
Why Is AVGO a Good Business?
Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate spanning wireless communications, networking, and data storage as well as infrastructure software focused on mainframes and cybersecurity.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Broadcom’s 20.9% annualized revenue growth over the last five years was incredible. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
2. Elite Gross Margin Powers Best-In-Class Business Model
In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.
Broadcom’s gross margin is one of the best in the semiconductor sector, and its differentiated products give it strong pricing power. As you can see below, it averaged an elite 76.1% gross margin over the last two years. That means Broadcom only paid its suppliers $23.90 for every $100 in revenue. 
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Broadcom has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 40.8% over the last two years.
Final Judgment
These are just a few reasons why Broadcom is one of the best semiconductor companies out there, and with the recent surge, the stock trades at 47.6× forward P/E (or $370.60 per share). Is now the time to buy despite the apparent froth? See for yourself in our in-depth research report, it’s free.
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