Should you invest in Broadcom shares after solid Q3 results?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Sep 3, 2021
  • Broadcom shares on Friday surged 1.50% after announcing its fiscal third-quarter results.
  • The company reported revenue and earnings Thursday after markets closed, beating analyst expectations.
  • However, although CEO Hock Tan expects growth to continue in Q4, the revenue guidance was below expectations.

On Friday, Broadcom Inc. (NASDAQ:AVGO) shares edged higher 1.5% after announcing its most recent quarterly results. The company reported its fiscal Q3 revenue and earnings Thursday after markets closed, beating analyst expectations.

However, Broadcom issued lower-than-expected revenue guidance for Q4, thereby dimming the impact of its Q3 performance. However, Broadcom president and CEO Hank Tan maintained optimism, saying that he expects the company to continue with the strong growth experienced in Q3.

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In the earnings conference call, Tan said:

Broadcom delivered record revenues in the third quarter reflecting our product and technology leadership across multiple secular growth markets in cloud, 5G infrastructure, broadband, and wireless.

Is it time to take some profits from Broadcom shares?

Although Broadcom shares trade at an attractive forward P/E ratio of 16.42, the stock price seems to have peaked since rallying more than 134% in the 12 months ending March. Moreover, the stock has been significantly choppy since the start of April, swinging to a net gain of about 7.85%. 

In addition, analysts expect AVGO earnings per share to grow at an average annual rate of just 8.50% over the next five years. Therefore, growth investors could opt for alternatives, factoring in the volatility of its stock price.

As a result, now could be a good time to take some profits from Broadcom shares with the semiconductor and software infrastructure company appearing to have hit a price ceiling in the short term.

Source – TradingView

Broadcom has no much room left to run

Technically, Broadcom shares appear closer to retesting current multi-year highs of $507.85, reached on Monday. Moreover, the stock also seems closer to hitting overbought conditions in the 14-day RSI.

Therefore, investors can target potential pullback profits at about $489.21 or lower at $478.38. On the other hand, if the stock price spikes again, it could find resistance at approximately $508.03 or higher at $518.16.

Bottom line: why sell the AVGO pullback?

In summary, although Broadcom shares appear to be enjoying a slightly bullish bias, the stock has recently spiked closer to overbought conditions, leaving little room for more upward movement.

Furthermore, the company’s bottom line growth looks limited based on analyst projections. Therefore, a pullback seems inevitable, meaning it could be time to take some profits from AVGO shares.

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