Skyworks Solutions Inc: More Upside for SWKS Stock?
The Bullish Case for SWKS Stock
There is massive anticipation for Apple Inc.’s (NASDAQ:AAPL) “iPhone 7,” not only for Apple, but for the suppliers that make the phones, such as Skyworks Solutions Inc (NASDAQ:SWKS). The share price of SWKS stock has been trading erratically, driven by iPhone sales and news that the seventh-generation iPhone will come out soon. SWKS develops advanced analog and mixed-signal semiconductors used in mobile connectivity.
SWKS stock fell to a 52-week low of $54.50 on lower iPhone sales and lower guidance for unit sales from Apple for the second quarter.
For key suppliers like Skyworks Solutions, the stock was unfairly punished since the company also has deals with other major smartphone makers, including Samsung.
For now, SWKS has been rallying on the charts–driven by strong results, great valuation and growth metrics, and optimism toward the next superphones: the Samsung “Galaxy 7” and the soon-to-be-released iPhone 7.
On the chart, Skyworks stock has recovered to the $70.00 level, but remains far off from its 52-week high of $92.63 and $112.00 in June 2015.
Chart courtesy of StockCharts.com
Skyworks stock shows a strong rally off the bullish double bottom in late June and early July, when the 52-week low was achieved. The subsequent uptrend for SWKS has been largely higher, except for a momentary relapse in late July and early August, after which SWKS made a strong upside breakout at above the 50-day moving average (MA) and 200-day MA.
Skyworks Looks Good, Despite Apple
While a successful launch of the iPhone 7 will be important for Skyworks Solutions, it is really not a critical make-or-break situation. Yes, the stock market will likely see SWKS stock trade lower on soft sales, but I would be looking at this as an opportunity.
The reality is, the underlying fundamentals for Skyworks stock are strong. Consider that Skyworks Solutions has managed to beat Wall Street earnings per share (EPS) estimates in 24 of the past 25 quarters. These are great results.
SWKS has recorded higher sequential revenue growth in two straight fiscal years, from $1.79 billion in FY13 to $2.29 billion in FY14, and an impressive $3.26 billion in FY15.
The growth is expected to continue at a mere 0.8% to $3.28 billion in FY16, followed by 7.50% to $3.53 billion in FY17, according to Yahoo! Finance. (Source “Skyworks Solutions Inc. (SWKS),” Yahoo! Finance, last Accessed August 25, 2016.)
Fiscal earnings have followed revenues higher and the positive trend is expected to continue into FY16 and FY17.
At the same time, the balance sheet has excellent working capital, no debt, and $976.0 million or $5.20 per share in free cash.
The valuation of Skyworks Solutions screams “opportunity,” especially if the stock retrenches toward its low range.
Trading at 12.15 times its FY17 EPS and a price/earnings to growth (PEG) ratio of only 0.75, SWKS looks attractive for a growth stock that will ride the smartphone market higher.
The Bottom Line on SWKS Stock
There are many ways of playing SWKS stock. Other than holding the actual stock, you can play via longer-term “call options” or selling “put options” to set a lower entry price while gathering some premium income at the same time.
