That's good, but there are significant problems facing this maker of radio frequency systems for wireless communications, which is why I'm avoiding this stock.
Shares were trapped in a trading range for about six months because investors wanted nothing to do with cellular supply chain names. Then, in November, Qorvo reported second-quarter earnings of $1.29 per share, 12 cents worse than expectations. Revenue rose 22% to $864.7 million, better than the $834 million consensus estimate. Chinese handset makers accounted for an extra $30 million in revenue during the quarter.
To ease investor minds, the board of directors authorized a new share repurchase program. The $500 million buyback includes a $159 million buyback that was previously authorized and was set to expire on Nov. 4.
While demand doesn't seem a problem, Qorvo has big-time execution issues. Gross margins of 42.8% were down sharply from the year before. In the same quarter last year, the company reported a 49.6% gross margin. The third-quarter gross margin estimate is 44.4%, down 340 basis points.
Qorvo's radio frequency filters are some of the most critical components in a cellular handset, and the gross margin line is disintegrating. The company wrecked its margins with factory utilization problems. Reports indicate the company had to scrap tons of low-quality parts and has had problems winning business from Apple (AAPL) - Get Report , a holding in Jim Cramer's Action Alerts PLUS portfolio. Qorvo is falling behind in terms of technology as Skyworks (SWKS) - Get Report and Broadcom (AVGO) - Get Report are carving up the next wave of handset wins.
Back in the summer I was positive on QRVO, but execution issues keep tripping up this stock. Gross margins fell 330 basis points in the first quarter, then 680 basis points in the second; they are projected to be down another 340 basis points. What?
Qorvo will be lucky to end the year with just a 450-basis-point drop in gross margins. So while revenue is expected to grow 18% this year, earnings are expected to grow just 7%-8%.
These guys should be killing it. They have between $4 and $8 in content in every iPhone sold. But Qorvo can't make money. Until the company can find a way to improve gross margins and grow the bottom line faster, I am avoiding this stock.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.