Skyworks Solutions currently trades at $68.39 per share and has shown little upside over the past six months, posting a small loss of 3.7%. The stock also fell short of the S&P 500’s 14.1% gain during that period.
Is there a buying opportunity in Skyworks Solutions, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think Skyworks Solutions Will Underperform?
We're swiping left on Skyworks Solutions for now. Here are three reasons you should be careful with SWKS and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Skyworks Solutions’s 4% annualized revenue growth over the last five years was mediocre. This was below our standard for the semiconductor sector. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Skyworks Solutions’s revenue to drop by 10.7%, a decrease from its 4% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Shrinking Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Looking at the trend in its profitability, Skyworks Solutions’s operating margin decreased by 19.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Skyworks Solutions’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was 12.2%.
Final Judgment
We see the value of companies furthering technological innovation, but in the case of Skyworks Solutions, we’re out. With its shares underperforming the market lately, the stock trades at 14.9× forward P/E (or $68.39 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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