Skyworks Solutions Will Continue Getting Punished

As soon as Apple (AAPL) released its terrible earnings, it was obvious that all Apple suppliers will get punished irrespective of their results. NXP Semiconductors had delivered stellar results and its guidance was also strong, and the stock was soaring. However, as soon as Apple announced its results and slashed its guidance, shares of NXP Semiconductor, along with other Apple suppliers, fell considerably.

Same is the case with Skyworks Solutions (SWKS). Skyworks Solutions delivered yet another earnings beat and although the company’s guidance was a little light, shares tanked.
I have been covering Skyworks Solutions for years and first recommended buying the stock when it was trading at $28. However, I recently turned bearish on the stock and recommended selling it at $80 primarily because of Apple’s slowing sales.

Although Skyworks Solutions has a very diversified revenue stream and it only generates a little over 20% of its business from Apple, I knew the stock would get hammered on the news of Apple reporting slow sales. Although Skyworks Solutions has delivered good earnings despite Apple’s weakness, investors continue to punish the stock.

However, with the smartphones market saturating, Skyworks Solutions may be headed for some trouble. The company may not be able to replicate its growth of 2014 and 2015 amid the saturating market. At current valuation, I think Skyworks Solutions is perfectly priced, however, it may head lower in the near future.

Since I still expect Apple to report weak iPhone sales, I would suggest against investing in Apple suppliers. While Skyworks Solutions may still be able to grow its margins, I think the stock has limited upside potential and the risk/reward ratio is not favorable right now.

Conclusion

Skyworks Solutions’ best days may be behind it but the stock is definitely undervalued. In addition, the company also has a decent dividend yield. However, with the smartphone market saturating, Skyworks Solutions growth may not be as strong as it was in the last three years and the stock will struggle to breach its 52-week highs.

Skyworks Solutions was one of my favorite stocks and I still think it can move higher in the long-term. However, for now, I think investors should watch the stock from the sidelines and wait for it to pullback more before initiating a long position.

The company needs new growth drivers, however, I think it has a pretty competent management and will not struggle in the long run.
Published on May 2, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...