Qualcomm Options Traders Bet Stock Will Plunge 15%

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Qualcomm Options Traders Bet Stock Will Plunge 15%

(Please keep in mind that the author of this fundamental study is also a financial writer and portfolio manager.)

Qualcomm Inc. (QCOM) stock has plummeted 15% since the beginning of September as part of the larger market sell-off driven by technology. Options traders now predict that the stock will decline 15% further by the middle of January from its present price of $63.25. One cause for the unfavorable opinion is the company’s upcoming earnings announcement on November 7.

Analysts predict that profits would fall by 9% in the fourth quarter, despite a 7% decline in sales.

QCOM data by YCharts

Bearish Bets

The options for January 18 expiry reveal that the number of bearish put bets outnumbers the number of bullish call bets by a factor of two. There are 26,000 active put options with a strike price of $62.5, implying that the stock may decline 6% to $59.10. Furthermore, the number of open contracts for the $55 strike price puts has increased to a total of 26,000 open puts. The puts forecast a 15% drop in the stock price to $53.90.

Declining Earnings and Revenue

Analysts forecast fourth-quarter profits of $0.84 per share, down from $0.92 last year. Meanwhile, revenue is likely to fall from $5.9 billion to $5.5 billion.

QCOM Quarterly EPS Estimates data by YCharts

Strong Growth in 2019

Analysts now anticipate a 24% increase in profits to $4.50 in fiscal 2019. Meanwhile, sales growth is expected to decline by 1% to $22.25 billion. In 2020, revenue is predicted to increase once again.

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QCOM Annual EPS Estimates data by YCharts

Analysts expect the stock to rise 17% to a price objective of $73.70. This represents a 12% increase from the end of July.

The company has a 2019 P/E ratio of 11.9, which is lower than the 13.5 average for the top 25 companies in the iShares PHLX Semiconductor ETF (SOXX).If Qualcomm’s earnings report later this week disappoints investors, the company’s value may need to decrease. This is because experts are anticipated to continue lowering their profit and sales growth projections for next year.

Michael Kramer is the Founder and Manager of Mott Capital Management LLC, a registered investment advisor, and the manager of the firm’s actively managed, long-only Thematic Growth Portfolio. Kramer normally purchases and keeps equities for three to five years. Click here to see Kramer’s profile and portfolio holdings. The information offered is only for educational purposes and does not constitute an offer or solicitation to sell or buy any particular stocks, assets, or financial strategies. Unless otherwise specified, investments involve risk and are not guaranteed. Before adopting any of the strategies outlined here, contact with a knowledgeable financial advisor and/or tax expert. The adviser will offer a list of all suggestions made in the previous twelve months upon request. Past performance does not predict future performance.

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