Skyworks Solutions (NASDAQ: SWKS) is a leader in semiconductors that allow for mobile connectivity. The company makes front-end modules, power amplifiers, direct conversion radios, chips and more. Its creations are essential to many of multimedia handsets, and has sold its chips to the likes of Samsung and Apple.
The company is now moving into the Internet of Things with components that connect automobiles with the web. This means it’s time to ask — is it time to go all-in with investments? Let’s take a serious look.
Skyworks’ Gamble on Semi-autonomous Vehicles
Skyworks’ move into the autonomous driving niche is certainly risky yet it has the potential to pay big dividends.
Skyworks is creating internet of things (IoT) chips for such vehicles. The chips are now used on Hyundai web-connected automobiles, Amazon Echos and Cisco Systems’ smart-home lighting. Indeed, IoT is poised to dominate the future, and Skyworks is positioning itself appropriately.
The company has proven it can serve as an important supplier for automakers and other top tech companies. Skyworks will undoubtedly benefit when autonomous, web-connected vehicles go mainstream. The question is how long it will take for IoT to hit a mainstream tipping point.
Skyworks is currently raking in revenue from IoT offerings, yet the company’s primary line of chips for mobile devices make up the majority of its business.
Why Skyworks’ Stock has Soared
Skyworks’ stock has performed well this year. The company has enjoyed sales success for its semiconductors that power devices ranging from wearables to smart-home systems, vehicles, smartphones and other mobile devices.
Though Skyworks’ stock has performed nicely in 2018, it suffered a significant dip after the 2017 fourth quarter results were released. Industry insiders are convinced the selling spree toward the end of the year was a temporary setback in which investors lost sight of the company’s overarching success.
Skyworks’ financials are excellent. The company’s revenues came in just under $985 million, representing a near-20 percent increase on a year-over-year basis. Net income jumped nearly 15 percent, hitting the $281 million mark. Skyworks executives anticipate a quarterly revenue increase of 15 percent. Executives have set expectations for non-GAAP earnings per share to increase upwards of 20 percent next quarter. Free cash flow margin is about 30 percent on a year-to-date basis.
Skyworks’ valuation at its current price of $97.78 is quite attractive. The company’s P/E ratio is a healthy 18. Take a look at Skyworks’ balance sheet and you will find no long-term debts and a cash balance of more than one and half billion dollars.
It appears as though everything is going in Skyworks’ way. Revenue is growing, the balance sheet doesn’t have any significant flaws and the company isn’t saddled by long-term debt.
Skyworks Will Benefit From 5G
5G networks are the wave of the future. These system architectures mandate powerful connectivity engines to guarantee performance challenges are achieved. The necessary upgrade will catalyze everything smartphone-related.
Skyworks is in the cat bird’s seat as it has the strategic partnerships, tech, differentiated systems solutions and existing clients necessary to capitalize on the introduction and spread of 5G. Some say 5G will be upwards of 100 times faster than previously attained speeds. Upwards of half a dozen cities will receive 5G connectivity this year.
The IoT cycle will also be hastened thanks to the rise of 5G connectivity, and likely reach the $1.4 trillion mark in the next three years. Such a figure represents a near-doubling of the current $800 billion spent on IoT. Skyworks will provide the highly efficient and uber-powerful connectivity solutions required to connect devices and transmit information.
Buy, Sell or Hold?
Skyworks’ stock is currently valued at a reasonable price. The company is in the perfect position to benefit from tech and industry trends. The shift to 5G, the growth of IoT and the rise of autonomous vehicles will continue to push Skyworks’ stock higher and higher. The company increased its dividend by nearly 15 percent this past year. Skyworks has boosted this dividend by nearly 150 percent in the past three years. This is a rapidly growing dividend stock you need a piece of as we transition to a world connected through 5G. Company executives have stated the aim is to pay upwards of half of free cash flow to its shareholders through dividends and the repurchase of shares.
Skyworks is poised to be a leader in IoT, autonomous vehicle chips and other offerings related to 5G connectivity. In other words, this company will play an important role in tech advancements that will be seemingly ubiquitous in years to come. If you do not own Skyworks Solutions, it is time to consider a stake in this growing business. Those who own the stock should hold for the long haul.
Regards,
Ethan Warrick
Editor
Wealth Authority
