Unveiling Skyworks Solutions (SWKS)'s Value: Is It Really Priced Right? A Comprehensive Guide
Skyworks Solutions Inc (NASDAQ:SWKS) closed at $98.93 per share on September 07, 2023, marking a 6.83% drop for the day. Despite a 6.23% loss over the past three months, the company's Earnings Per Share (EPS) stands strong at 6.49. The critical question that emerges from these figures is whether Skyworks Solutions (NASDAQ:SWKS) is modestly undervalued. This article aims to provide a comprehensive valuation analysis to answer this question. Read on to understand the intrinsic value of Skyworks Solutions and make informed investment decisions.
Company Overview
Skyworks Solutions Inc (NASDAQ:SWKS) is a leading semiconductor producer for wireless handsets and other devices used for wireless connectivity. The company's primary products include power amplifiers, filters, switches, and integrated front-end modules that support wireless transmissions. Skyworks Solutions primarily serves large smartphone manufacturers, with a growing presence in non-handset applications such as wireless routers, medical devices, and automobiles. The company's stock price stands at $98.93, while its GF Value, an estimation of fair value, is $134.96, suggesting that the stock might be modestly undervalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a snapshot of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Skyworks Solutions (NASDAQ:SWKS) appears to be modestly undervalued. With a market cap of $15.80 billion, the stock seems to offer higher long-term returns due to its relative undervaluation.
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Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy its stock. Skyworks Solutions has a cash-to-debt ratio of 0.43, which is worse than 80.78% of 895 companies in the Semiconductors industry. However, GuruFocus ranks the overall financial strength of Skyworks Solutions at 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Skyworks Solutions has been profitable for the past 10 years, with an operating margin of 26.38%, ranking better than 90.09% of 938 companies in the Semiconductors industry. This strong profitability is complemented by a decent growth rate. The company's 3-year average revenue growth rate is better than 69.41% of 863 companies in the Semiconductors industry, while its 3-year average EBITDA growth rate is 21.1%, ranking worse than 51.96% of 766 companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Skyworks Solutions's ROIC was 15.22, while its WACC came in at 9.97, suggesting the company is creating value for its shareholders.
Conclusion
In conclusion, Skyworks Solutions (NASDAQ:SWKS) stock appears to be modestly undervalued. The company's strong financial condition and profitability, coupled with decent growth rates, make it an attractive investment. For more details about Skyworks Solutions stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
