On a day like March 7, Broadcom Inc. (AVGO) unleashed financial results that shook the ground beneath investors’ feet. The seismic waves of the announcement reverberated through the stock market, indicating that AVGO stock could potentially hold even greater value, a tantalizing 18% more – a sum that could stand as a golden goose for existing shareholders willing to tread the adventurous path of shorting out-of-the-money (OTM) put options.
The Raging River of Free Cash Flow and Margins
As the curtains rose on Broadcom’s financial stage, the spotlight blinded spectators with the revelation that the company’s revenue soared to dizzying heights – a 34% increase Year over Year, reaching $11.96 billion. The crescendo, however, reached a fever pitch with the majestic performance of its free cash flow (FCF). The figures spoke of a 19.3% leap from $3.933 billion to $4.693 billion during the quarter, signifying a formidable FCF margin of over 39% – a number that could make any seasoned investor’s heart skip a beat. Yet, this enchanting tale carries a slight shadow, as the margin, although opulent, had receded from its former glory of 44%. The prior quarter flaunted a slightly plumper $4.72 billion FCF with a breathtaking 50.8% margin, setting a high bar that the present results struggled to surpass.
The market’s response hinted at a more insatiable hunger for even higher margins despite the tantalizing revenue surprise and the lofty FCF margin. The traders’ discontent whispered tales of desire for fatter margins, leaving a bittersweet aftertaste in the wake of the news. Though, amid the commotion, Broadcom managed to sow seeds of hope with a good outlook and guidance, suggesting that AVGO stock might still be a hidden gem, waiting to be unearthed by savvy investors.
A Glimpse into the Future: Target Price for AVGO Stock
Amidst the chaos, a beacon emerged from Broadcom’s earnings release, illuminating a path to prospective riches. The proclamation of an expected revenue of around $50 billion for the fiscal year ending in October 2024 tantalized the senses of eager analysts. Beyond this horizon, a shimmering $56.86 billion in projected sales for the subsequent fiscal year awaited, hinting at a forthcoming crescendo in AVGO’s financial symphony.
The management’s oracle revealed that adjusted EBITDA would stand at 60% of revenue, painting a vivid picture of a harmonious NTM run rate adj. EBITDA of $32.1 billion. This revelation became the cornerstone for projecting a future FCF of $21 billion, laying a golden path for dividend payments, much like a maestro conducting a flawless performance.
A more straightforward method of determining future value emerged – a simple calculation taking $53.5 billion in revenue for the next 12 months and marrying it to an assumed FCF margin of 45%. The result whispered the tale of a projected market cap of $752 billion, a promise of wealth waiting to be uncovered, a treasure trove hidden in plain sight.
Shorting OTM Puts: A Song of Income and Risk
As investors wait for the stock to ascend like a rising phoenix, a tantalizing opportunity arises – the sale of short out-of-the-money (OTM) put options for income. The short-term allure of high put premiums beckons like a siren’s call, offering a chance for gains in the volatile March 28 expiration period, shrouded in uncertainty and opportunity.
By delving into this risky yet lucrative venture, investors can bring forth immediate income from the depths of uncertainty, much like a magician conjuring wealth from thin air. The catch lies in the prerequisite of securing ample capital for the endeavor, a test of nerves and resources, promising both income and protection, a delicate dance on the tightrope of risk and reward.
In the grand tapestry of the stock market, AVGO stock emerges as a hidden gem, waiting to be unearthed by daring investors willing to navigate its treacherous waters. The path to potential riches lies open, paved with opportunities yet cloaked in shadows of risk and uncertainty.
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