Broadcom pulled back after smashing expectations - time to buy?

On Monday morning, shares of semiconductor and software infrastructure company Broadcom Inc. (NASDAQ:AVGO) pulled back nearly 1.78%. This pullback erased almost all the gains the company made on Friday following Thursday’s smashing earnings report. The company beat expectations on revenue as well and issued a better than expected top-line guidance.

Broadcom’s exciting growth story

In the company’s most recent quarterly results, Broadcom’s GAAP earnings per share grew to $3.30, up from $1.17 in the same period a year ago. Adjusted earnings of $6.62 per share also showed significant improvement from last year’s equivalent of $5.14. Analysts were expecting AVGO to post adjusted earnings per share of $6.43.

Revenue grew to $6.61 (£4.66) billion, up from $5.74 (£4.05) billion in the same quarter a year ago. Analysts polled by Factset were expecting the company to post a top line of $6.51 (£4.59) billion. The company now expects to post revenue of $6.75 in the fiscal third quarter compared to the consensus analyst expectation of $6.59 billion.

This illustrates expected growth in the coming quarters. An improved top line will have a positive impact on the bottom line. The company’s forward P/E ratio of just 15.71 compared to a trailing 12-month P/E of 53.97 suggests that the stock is potentially undervalued going into the second half of the year.

Technical overview

AVGO stock appears to have recently pulled back closer to the oversold levels of the 14-hour RSI. This could trigger a rebound in the stock price. Shares are trading just above the 100-hour moving average. If the stock falls further to this level, this could also trigger the next rebound. 

Therefore, there are catalysts for a rebound in the AVGO stock price. Investors will target rebound profits at around the key resistance levels at $478.27 and $494.96. Key support levels can be found at $442.10 and $426.80.

Bottom line: Pullback could be an opportunity to buy AVGO ahead of growth

Broadcom’s growth story looks interesting. The company’s promising top line and bottom line in fiscal Q2 have put it on a path to deliver even better results in the coming quarters. AVGO’s fiscal Q3 guidance already suggests that better days are ahead. Therefore, the pullback in AVGO shares on Monday has created an opportunity to buy the stock ahead of a very exciting period.