Broadcom's valuation is attractive; projected 80% total return by 2028 supports a bull thesis.

The second stock on this month's list is Broadcom, and if you've been following the channel for a while, you know that this is a stock I've held in my portfolio for a long time, and I've continued to add capital over the years.

What is interesting is that if you look at my position in Broadcom's growth, you can see that I made a profit of over 180% on my average cost basis , but on my original shares, I made a profit of over 500%, possibly as high as 600%.

But I continued to add new capital to this center.

Why is this the case? Well, the tendency is always to look at a stock that has seen a significant increase in its share price and automatically assume that the valuation must also be expensive.

But it is important to remember that stock price and valuation are not the same thing at all .

So, even though this stock has risen 586% in the last five years, take a look at what has happened to the price-to-earnings (P/E) ratio. It is now close to its lowest level in the past three years , and certainly at its lowest level in just the past year.

This is a great graph from my friend Arya. Take a look at this. What we are looking at in red is Broadcom's price-to-earnings ratio, and what is in blue are the revenue growth rates that this company has been achieving.

What do you notice? Revenue growth has accelerated significantly, but the price-to-earnings ratio has also fallen significantly. The last time this price-to-earnings ratio was traded, revenue growth was much lower.

Now, to recap, we have two main business sectors for Broadcom. We have semiconductor solutions , and then we have infrastructure software . Both are growing at very strong rates.

Infrastructure software is a layer of business that is repetitive in nature, similar to a subscription business model. But the growth was astonishing, at around 29% year-on-year.

Then semiconductor solutions, which rose by 127% year-on-year. This is where the bulk of the revenue actually comes from.

Keep in mind that, historically, much of their growth has come through acquisitions, but they have been very profitable. So, ultimately, the argument about Broadcom is that the valuation looks interesting at current prices.

Why is this the case? Well, their CEO recently gave us some amazing insights. He stated, "We are on track to exceed $30 in earnings per share in fiscal year 2028."

So, let's keep this number in mind and simply perform a sensitivity analysis of it. We will go up here and enter Broadcom data. All we do is forecast future returns based on expectations of future earnings growth and based on the future price-to-earnings ratio that we believe they will trade at.

Keep in mind that we are using the earnings multiple for the past twelve months in this scenario.

So, what kind of growth do analysts expect? Well, we can see that the average earnings per share forecast for 2028 is $30.51. This is in complete line with what Hock Tan, the CEO, is directing .

The projected compound annual growth rate for earnings per share through 2030 is approximately 43.51%.

So, let's start playing with these numbers and see what future returns look like based on analyst forecasts and CEO guidance . Let's play with the numbers for a moment. Now, if their earnings grow by 60% through 2028, that puts them at around $30 per share by 2028, as management has indicated.

Even if we see a sharp decline in the price-to-earnings ratio, and perhaps the ratio drops by half, you can still see that future returns will look very attractive even at those prices.

So, even if the multiple continues to shrink, and Broadcom's price-to-earnings ratio continues to fall, even at these prices, Broadcom might make a very reasonable choice.

Total returns are projected to reach approximately 80% by 2028. However, the reality is that this does not include dividends either. The dividend payout metrics and growth record for this stock are historically very attractive.

The initial dividend yield is low, but this stock is growing its dividends in the truest sense of the word. The average compound annual growth rate of distributions over 10 years is 26%.

The average compound annual growth rate of distributions over 5 years exceeds 11%. The dividends in 2015 were 16 cents. But now it exceeds $2.42. Therefore, it is an amazing 10-year dividend growth, which is of course supported by free cash flow growth.

Free cash flow has grown at an enormous rate. With these growth expectations continuing, there is almost no doubt that we will see distributions continue to grow at double-digit rates in the future.

Again, this is a scenario where the stock looks cheap because earnings growth prospects are so strong, just as we see for the S&P 500. It would take a dramatic slowdown in earnings growth for Broadcom stock not to perform well at current prices.

It is clear that we will see a high level of volatility in the short term. But in the long run, stock prices follow earnings growth. To be perfectly transparent, this is a stock to which I have added more capital in my personal investment portfolio.