Skyworks Solutions currently trades at $65.78 per share and has shown little upside over the past six months, posting a middling return of 2.1%. The stock also fell short of the S&P 500’s 9.3% gain during that period.
Is now the time to buy Skyworks Solutions, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Skyworks Solutions Will Underperform?
We’re sitting this one out for now. Here are three reasons you should be careful with SWKS, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Skyworks Solutions’s demand was weak and its revenue declined by 1.6% per year. This wasn’t a great result and is a sign of poor business quality. 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 1.6%. Although this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.
3. Shrinking Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Looking at the trend in its profitability, Skyworks Solutions’s operating margin decreased by 19 percentage points over the last five years. 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 9.1%.
Final Judgment
We see the value of companies furthering technological innovation, but in the case of Skyworks Solutions, we’re out. With its shares lagging the market recently, the stock trades at 13.9× forward P/E (or $65.78 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Skyworks Solutions
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