After the Rally, It's Time to Dump Skyworks SolutionsSWKS) was once a splendid performer as the company beat estimates and raised guidance for several successive quarters between 2013 and 2015. However, the company’s growth peaked with the iPhone 6 and although it has missed on estimates since then, the company’s guidance has taken a hit several times.
I was bullish on Skyworks Solutions ever since it was trading under $30, but changed my stance towards the end of last year. While I still think Skyworks Solutions is a good company, its growth has peaked alongside Apple (AAPL). Although Skyworks Solutions has a diversified source of revenue, its success is closely tied to Apple.
While its dependence on Apple was a blessing when iPhone sales were soaring, it has become a curse now.
The iPhone 6S was not as successful as the iPhone 6 and given that Samsung’s Galaxy S7 has been a more successful phone than its predecessor, I expect the upcoming iPhone 7 to underperform as well.
Although Skyworks Solutions has rallied in the past week, (maybe because of Apple’s better-than-expected quarter) I don’t expect the rally to continue.
Image by WerbeFabrik / Pixabay
According to the rumors, the iPhone 7 isn’t expected to have any major upgrades that would make it a must have phone for consumers. Granted there will be herds of Apple loyalist buying the device as soon as it hits the store, but the overall sales prospects look weak. Given that people spend over hundreds of dollars for the phone, it would be wise to expect another year of sales decline if Apple doesn’t massively improve the iPhone 7.
Moreover, with technical advancements in the smartphone industry over the years, there isn’t much room left for improvement. Hence, I expect Apple to have another bad year, which in turn will have a negative impact on Skyworks Solutions.
Due to the reasons mentioned above, I think investors should consider selling Skyworks Solutions. The stock has rallied strongly over the last few weeks, however its annual revenues are still expected to stay flat this year. Skyworks Solutions is not a growth stock anymore and it isn’t cheap as well. With the market hovering near all-time highs, I think investors should use the recent rally to sell Skyworks Solutions.
Disclosure: No position
Published on Aug 31, 2016By Ayush Singh