Broadcom Inc. (NASDAQ: AVGO) has become an investor favorite over the past year.
Back on 6 April 2020, Mr. Market was paying $252.44 for Broadcom (AVGO) shares. On 7 April 2021, Mr. Market paid $483.23 for Broadcom shares.
In common with other technology companies, Broadcom has prospered over the past year. The pandemic and recession have been good for Broadcom shares, but is Broadcom making money?
Does Broadcom Make Money?
Broadcom (NASDAQ: AVGO) made more money in 2020. Broadcom began 2020 with a quarterly operating income of $714 million.
The quarterly operating income rose to $1.837 billion on 31 January 2021. Impressively, Broadcom’s quarterly operating income grew by $1.123 billion in 2020.
Similarly, the quarterly gross profit grew from $2.594 billion on 31 January 2020 to $2.703 billion on 31 January 2021. Additionally, the quarterly revenues grew from $5.858 billion on 31 January 2020 to $6.644 billion on 31 January 2021.
Hence, Broadcom’s quarterly revenues grew by $797 million in 2020. Moreover, Broadcom’s quarterly revenue growth rate rose from 1.19% on 31 January 2020 to 13.61% on 31 January 2021, Statista estimates.
Consequently, it is easy to see why some investors love Broadcom the company grows, makes more money, and has a rising margin of safety. So what is Broadcom anyway?
How Broadcom Makes Money
I think Broadcom (AVGO) grows because it manufactures the hardware the internet and the cloud operate on.
Cloud computing, remote work, and e-commerce are exploding because of the pandemic. That drives demand for many of Broadcom’s products.
For example, Broadcom’s products include Fibre Channel directors and switches that serve as foundation infrastructure for on-demand data centers. In addition, Broadcom manufactures ExpressFabric and PCI Express switching solutions that provide high performance connectivity for data centers and computer networks.
Other Broadcom connectivity products include Ethernet Connectivity, Switches, CPE-Gateway, Infrastructure, and Set-top boxes, Embedded and Networking Processors, Fibre Optic Modules and Components, Optocouplers and Opto-Isolators. Another Broadcom speciality is customized system-on-a-chip application-specific integrated circuits (ASIC) solutions.
Thus Broadcom builds the infrastructure the world needs now. That gives Broadcom some value-investment characteristics.
How Much Money does Broadcom Make?
Broadcom (AVGO) is generating more cash from its business. For instance, Broadcom’s quarterly operating cash flow rose from $2.322 billion on 31 January 2020 to $3.113 billion on 31 January 2021.
Thus, Broadcom’s quarterly operating cash flow grew by $783 million in 2021. Moreover, Broadcom’s quarterly ending cash flow grew from $6.444 billion on 31 January 2020 to $9.552 billion on 31 January 2021. Thus, the quarterly ending cash flow grew by $3.108 billion in 2020.
Interestingly, Broadcom’s quarterly financing cash flow fell from $10.054 billion on 31 January 2020 to -$1.057 billion on 31 January 2021. Thus, Broadcom has borrowed enormous amounts of money, but it pays enormous amounts of debt.
Consequently, Broadcom’s total debt fell from $44.718 billion on 31 January 2020 to $41.932 billion on 31 January 2021. Meanwhile, Broadcom’s cash and short-term investments grew from $6.444 billion on 31 January 2020 to $9.552 billion on 31 January 2021.
What Value Does Broadcom have?
Hence, Broadcom Inc. (NASDAQ: AVGO) finished 2020 with more cash and less debt. I think that makes Broadcom an excellent company with strong value characteristics.
Conversely, Broadcom’s total assets fell from $81.006 billion on 31 January 2020 to $76.972 billion on 31 January 2021. Thus, Broadcom’s value shrank in 2020. However, I think Broadcom is a good stock because it has more cash and less debt.
Appealingly, I think Broadcom is an excellent dividend stock. Broadcom paid a $3.60 quarterly dividend on 31 March 2021. That quarterly dividend grew from $3.25 on 30 September 2020.
Thus, Broadcom’s quarterly dividend grew by 35¢ in the past year. Overall, Broadcom offered a $13.70 last-twelve-months (LTM) Dividend and a dividend yield of 2.95% on 5 April 2021, Dividend.com estimates.
In the final analysis, I consider Broadcom a great dividend stock that Mr. Market overpriced at $483.23 on 7 April 2021. I think investors need to avoid Broadcom until its price falls to a realistic level.
Originally published at https://marketmadhouse.com on April 6, 2021.
