Broadcom Inc. (AVGO) Stock Analysis
Broadcom Inc. (AVGO) Stock Analysis
Overall Grade: F (Concerning)
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Broadcom Inc. faces challenges in financial performance that warrant careful analysis.
Key Metrics:
| Metric | Value | Context |
|---|---|---|
| ROIC | 18.3% | Solid returns |
| FCF Margin | 42.1% | Strong cash generation |
Investment Thesis: Strong return on invested capital of 18.3% suggests durable competitive advantages and efficient capital allocation.
What is Broadcom Inc.'s Profitability and ROIC?
Broadcom Inc. generates strong returns on invested capital at 18.3%, indicating efficient capital allocation and competitive advantages. Gross margin of 67.8% with operating margin at 39.9% reflects the company's strong market position.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 18.3% | Good | Strong capital efficiency |
| Gross Margin | 67.8% | Excellent | Strong pricing power |
| Operating Margin | 39.9% | Excellent | Efficient operations |
How Strong is Broadcom Inc.'s Cash Flow Quality?
Broadcom Inc. generated $26.9B in free cash flow over the trailing twelve months, representing a 42.1% margin. Cash earnings quality is strong, with operating cash flow exceeding net income by 1.2x.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Free Cash Flow Margin | 42.1% | Excellent | Excellent cash conversion |
| Free Cash Flow (TTM) | $26.9B | Good | Positive cash generation |
| OCF/Net Income | 1.2x | Excellent | High earnings quality |
| FCF Consistency (8Q) | N/A | Warning | Variable cash flow |
What is Broadcom Inc.'s Financial Health?
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Net Cash Position | $-49.0B | Warning | Net debt position |
Is Broadcom Inc. Stock Overvalued or Undervalued?
Broadcom Inc. trades at a P/E of 75.3x, representing a premium to the sector median of N/A. Free cash flow yield of 1.5% reflects market expectations for growth.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| P/E Ratio | 75.3x | Warning | Premium valuation |
| EV/Sales | 28.1x | Warning | Growth premium priced in |
| FCF Yield | 1.5% | Warning | Lower cash yield |
| Dividend Yield | 0.6% | Adequate | Growth focus over income |
Sector Rankings
| Metric | Value | Percentile | vs Median |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 18.3% | Top 25% | 2.8x above |
| Free Cash Flow Margin | 42.1% | Top 5% | 4.2x above |
| Gross Margin | 67.8% | Top 50% | 1.3x above |
| Operating Margin | 39.9% | Top 5% | 6.3x above |
| P/E Ratio | 75.3x | N/A | - |
Rating Thresholds
Return on Invested Capital (ROIC)
Measures how efficiently a company uses its debt and equity capital to generate profits. ROIC above 15% typically indicates a competitive moat.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Exceptional capital efficiency, strong competitive moat |
| Good | 12% - 20% | Above-average returns, sustainable competitive position |
| Adequate | 8% - 12% | Around cost of capital, moderate competitive position |
| Warning | 4% - 8% | Below cost of capital, value may be eroding |
| Red flag | < 4% | Significant capital destruction, fundamental issues |
Current: 18.3% (Good - Top 25% of sector (median: 6.5%))
Free Cash Flow Margin
The percentage of revenue converted to free cash flow. Higher margins indicate stronger cash generation and business quality.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Strong cash generation, high-quality business |
| Good | 10% - 20% | Healthy cash conversion |
| Adequate | 5% - 10% | Moderate cash generation |
| Warning | 0% - 5% | Thin cash margins, capital intensive |
| Red flag | < 0% | Cash burn, potential liquidity concerns |
Current: 42.1% (Excellent - Top 5% of sector (median: 10.0%))
Gross Margin
Revenue minus cost of goods sold as a percentage. Higher gross margins indicate pricing power and competitive advantage.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 50% | Strong pricing power and competitive moat |
| Good | 30% - 50% | Healthy margins, differentiated product |
| Adequate | 20% - 30% | Moderate margins, competitive industry |
| Warning | 10% - 20% | Thin margins, commodity-like business |
| Red flag | < 10% | Very thin margins, structural challenges |
Current: 67.8% (Excellent - Top 50% of sector (median: 52.9%))
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Lower P/E may indicate undervaluation, while higher P/E suggests growth expectations.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 15x | Attractively valued, potential opportunity |
| Good | 15x - 25x | Fair value for quality company |
| Adequate | 25x - 35x | Growth premium, justify with earnings growth |
| Warning | 35x - 50x | High expectations priced in |
| Red flag | > 50x or negative | Speculative valuation or losses |
Current: 75.3x (Warning)
Free Cash Flow Yield
Free cash flow per share divided by stock price. Higher FCF yield indicates better cash return relative to valuation.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 8% | High cash return, potential value opportunity |
| Good | 5% - 8% | Solid cash yield |
| Adequate | 3% - 5% | Moderate cash return |
| Warning | 1% - 3% | Low cash yield, growth expectations |
| Red flag | < 1% | Minimal cash return to shareholders |
Current: 1.5% (Warning)
Frequently Asked Questions
Q: What is Broadcom Inc.'s Return on Invested Capital (ROIC)?
Broadcom Inc. (AVGO) has a trailing twelve-month Return on Invested Capital (ROIC) of 18.3%. This compares above the sector median of 6.5%. An ROIC between 12-20% indicates solid capital allocation and sustainable competitive position.
Q: What is Broadcom Inc.'s Free Cash Flow Margin?
Broadcom Inc. (AVGO) has a free cash flow margin of 42.1%, generating $26.9 billion in free cash flow over the trailing twelve months. A FCF margin above 20% indicates excellent cash conversion and a high-quality business model.
Q: Is Broadcom Inc. stock overvalued or undervalued?
Broadcom Inc. (AVGO) trades at a P/E ratio of 75.3x, which is above the sector median of N/A. The EV/Sales multiple is 28.1x. Free cash flow yield is 1.5%, reflecting growth expectations priced into the stock.
Q: Does Broadcom Inc. pay a dividend?
Broadcom Inc. (AVGO) currently pays a dividend yield of 0.6%. Including share buybacks, the total shareholder yield is 0.8%. The relatively low yield suggests the company prioritizes growth reinvestment over income distribution.
Q: What is Broadcom Inc.'s revenue and earnings growth?
Broadcom Inc. (AVGO) grew revenue by 23.9% year-over-year. Earnings per share increased by 291.0% compared to the prior year. Double-digit revenue growth indicates strong demand and market share gains.
Q: Is Broadcom Inc. buying back stock?
Broadcom Inc. (AVGO) repurchased $2.5 billion of stock over the trailing twelve months. This represents a buyback yield of 0.1%.
Q: How does Broadcom Inc. compare to competitors in Technology?
Compared to other companies in Technology, Broadcom Inc. (AVGO) shows: ROIC of 18.3% is above the sector median of 6.5% (Top 24%). FCF margin of 42.1% exceeds the sector median of 10.0% (Top 0% of sector). Gross margin at 67.8% is 14.8 percentage points higher than sector peers. These rankings are based on MetricDuck's analysis of all Technology companies with available SEC filings.
Q: What warning signs should I watch for with Broadcom Inc.?
Broadcom Inc. (AVGO) shows no major financial warning signs based on current metrics. However, investors should always monitor: 1) Margin compression trends, 2) Cash flow consistency, 3) Debt levels relative to cash generation, and 4) Changes in competitive positioning.
Data Source: Data sourced from 10-K filed 2025-12-18. TTM metrics as of Q4 2025.
Methodology: Financial metrics calculated from SEC 10-K and 10-Q filings using standardized formulas. Sector comparisons use peer group based on SIC code.
This analysis is for informational purposes only and does not constitute investment advice.