Broadcom (AVGO) Went Nowhere for a Year. Analysts Think It Is Worth 50% More

Broadcom Inc. (NASDAQ: AVGO ) closed at $344.33 on October 15. The stock has returned -13.59% over the last six months, compared to a 15.4% return for the Insider Monkey Billionaire Index and 11.4% for the State Street SPDR S&P 500 ETF Trust.

Broadcom sells two things mainly that have little to do with each other. It designs chips, including the custom processors that large technology companies order instead of buying standard parts. It also sells infrastructure software to corporate customers, a business it assembled through acquisitions.

The chips are the larger half and the reason anyone follows the stock. What makes the past year strange is that the business grew at a pace few companies this size manage, and the share price finished where it started. As per CNN, analysts covering the stock put their median target 52.47% above where it trades now.

Revenue in the most recent quarter was 85.5% higher than a year earlier. Earnings grew 216.1% over the same stretch. Those are not the numbers of a company treading water.

The custom chip business explains most of it. When a large technology firm decides it wants its own processor rather than a standard one, it comes to a small number of designers, and Broadcom is the largest of them.

That work is also sticky in a way ordinary chip sales are not. A customer that commits to a custom design cannot change supplier without starting the engineering again. Broadcom appears alongside the other names analysts see the most room in through our 10 Most Promising Technology Stocks to Buy Right Now . To see which ones, click HERE .

The stock has fallen 1.43% over twelve months while the business behind it roughly doubled, and all of that decline has come in the past six months. One explanation is that the price had already moved before the growth arrived, and the past year has been the company catching up to its own valuation rather than the other way round.

The multiple supports that reading. Broadcom trades at 46.50 times what it earned over the past year, which is a demanding figure even after a flat twelve months.

There is a concentration problem too. The custom chip customers are a handful of very large companies with the resources to bring the work in-house if they ever decide to. Growth of this kind depends on a few decisions made in a few places.