Connectivity chip stocks like Skyworks (SWKS) and Qorvo (QRVO) are less volatile in the semiconductor industry with a beta of less than one. A beta is a measure of volatility where the market has the volatility of one. A beta that’s greater than one indicates higher volatility than the market. Currently, these stocks show technical strength. The overall market is improving after the 2018 downturn.
Analysts are mixed about Qorvo and Skyworks. Some analysts have a “buy” recommendation, while others have a “hold” recommendation. None of the analysts have a “sell” recommendation for the two stocks. The stocks will likely benefit from the 5G rollout in 2020 and beyond.
Currently, Qorvo is trading at its median target price of $70. Skyworks is trading 11% below its median target price of $90. Analysts calculate a stock’s target price by applying a price ratio to their estimates for the company’s earnings for the next four quarters. They change their target prices based on recent developments. Is it the right time to buy these stocks?
A company’s price-to-sales ratio tells us the amount investors are willing to pay for every dollar of the company’s sales. As of March 26, Skyworks’ price-to-sales ratio of 3.77x was higher than Qorvo’s ratio of 2.84x. Skyworks has a high price-to-sales ratio. Skyworks’ stock price rose even though its fiscal 2019 sales are expected to fall 7.9% YoY (year-over-year). Investors have already priced in the 7% YoY sales growth expected for fiscal 2020.
A company’s PE ratio tells us the amount investors are willing to pay per dollar of the EPS. As of March 26, Skyworks’ PE ratio of 13.15x is way below Qorvo’s ratio of 153.7x.
The PE ratio shows that Qorvo is a relatively expensive stock. The company is expected to have 9% YoY EPS growth for fiscal 2019 and no growth in fiscal 2020. Skyworks is a cheap stock given its potential to deliver 12% YoY EPS growth in fiscal 2020 when it realizes the benefit of 5G.