Why Skyworks Solutions Inc’s (NASDAQ:SWKS) Cash Is A Factor You Need To Consider
Skyworks Solutions Inc (NASDAQ:SWKS) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. This difference directly flows down to how much the stock is worth. Operating in the industry, SWKS is currently valued at US$13b. I’ve analysed below, the health and outlook of SWKS’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
See our latest analysis for Skyworks Solutions
Is Skyworks Solutions generating enough cash?
Skyworks Solutions’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Skyworks Solutions to continue to grow, or at least, maintain its current operations.
I will be analysing Skyworks Solutions’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Along with a positive operating cash flow, Skyworks Solutions also generates a positive free cash flow. However, the yield of 4.81% is not sufficient to compensate for the level of risk investors are taking on. This is because Skyworks Solutions’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does Skyworks Solutions have a favourable cash flow trend?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at SWKS’s expected operating cash flows. Over the next couple years, the company is expected to grow its cash from operations at a double-digit rate of 40%, ramping up from its current levels of US$1.3b to US$1.8b in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, SWKS’s operating cash flow growth is expected to decline from a rate of 34% in the upcoming year, to 4.0% by the end of the third year. But the overall future outlook seems buoyant if SWKS can maintain its levels of capital expenditure as well.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Skyworks Solutions relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research Skyworks Solutions to get a more holistic view of the company by looking at:
Valuation: What is SWKS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SWKS is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Skyworks Solutions’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
