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Is Skyworks Solutions Too Risky Given Current Macro Conditions?

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Skyworks’s returns

Shares of Skyworks Solutions (SWKS) have been volatile over the last 15 months. The stock has returned 33.3% in the last 12 months, but in the first four months of 2019, it gained almost 40.0% before wiping out all of its returns. Since the start of May, SWKS has fallen 24.0%. It’s currently trading at $66.92, 36.0% below its 52-week high of $104.20.

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What affected Skyworks stock?

Skyworks stock took a hit after President Donald Trump tweeted about the escalation of the tariff war between the United States and China. Skyworks generates over one-quarter of its sales from China (FXI).

Last month, the US government also banned the use of Huawei equipment in the country, citing cybersecurity concerns. Huawei is a major Skyworks customer, and Skyworks stock fell following the ban.

Skyworks stock also generates ~40.0% of its sales from Apple, so lukewarm iPhone sales expectations have weighed on its stock. The smartphone market has matured and is now a slow growth segment.

However, it’s not all doom and gloom for Skyworks. The analog semiconductor and radio frequency solutions provider has significant upside potential due to the advent of 5G technology and growth in the Internet-of-Things space. Skyworks will be a key provider of switches and bands for smartphones with 5G capabilities, which will significantly increase the cost of its materials in each smartphone, driving its sales.

Skyworks can leverage these macro trends and diversify its revenue base, which should improve its market leadership. The company provides solutions across the data center and cloud verticals.

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PE multiple

SWKS stock is trading at a forward PE multiple of 9.0x. While analysts expect its earnings to fall 8.2% in the coming year, they expect its earnings to rise 12.2% next year. The company’s earnings are expected to rise at a compound annual growth rate of 10.1% over the next five years.

Comparatively, its earnings have risen 15.3% in the last five years. Following negative revenue growth in 2019, Skyworks’s sales are expected to increase 8.5% annually between 2019 and 2021.

Analysts’ estimates

Of the 28 analysts tracking Skyworks, 22 have given it “buys,” five have given it “holds,” and one has given it a “sell.” Analysts have a 12-month average target price of $99.5 on Skyworks stock, indicating a potential upside of 49.0% from its current price.

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