Skyworks Solutions (SWKS, Financial) released its earnings earlier this week and managed to once again beat the analyst estimates. Skyworks has been beating estimates and raising guidance for the last six quarters; however, it guided below the consensus target this time around. Despite the weak guidance, the stock jumped as investors had already priced in a weak guidance in Skyworks' stock.
Following Apple’s (AAPL, Financial) guidance cut, investors were expecting Apple suppliers to post slashed guidance. As a result, the Street didn’t overreact to Skyworks’ report, and the stock headed upward.
I believe Skyworks Solutions has been unfairly punished by the Street as the stock has lost a considerable value despite reporting strong numbers. But long-term investors can use this underperformance to buy the stock at a beaten-down valuation as I think it is trading at least 20% below its fair valuation.
Multiple tailwinds
At present, Skyworks is performing well in an industry with several tailwinds. One of the main tailwind accounts for exploding data consumption across the enterprise and customer background. According to the analyst estimate, mobile data usage will surge at around 60% compounded annual growth rate through 2019. This sheds light on substantial strains on network set-up and devices. According to several reports, only one-third of the range desired to meet bandwidth over the approaching few years is in service currently.
On the other hand, data consumption is likely to surge mainly due to growth of 4K and video technology. Development in video technology will have major effect on battery life, as video consumes a lot of battery. Therefore, clients have to deal with the shifting marketplace. Skyworks is modeling next-generation solutions, which will permit the company to sustain growth and possibly improve customer base.
Apart from this, connectivity in developing markets is a massive tailwind. Meanwhile mobile phones have turned out to be more affordable in developing markets, and this has permitted superior access to them. Still, many people in developing markets do not have them.
For instance, the total population of India is 1.25 billion people, but only 150 million have smartphones. This clearly represents a massive growth opportunity. Furthermore, internet access is still mounting. It is projected that 6% of families in developing markets have a fixed broadband connection. As access is improved, usage rates will surge, and the prospect for the company will be marvelous.
Growth in other markets
Skyworks has performed very well and successfully managed to hold its position in the market. The company’s stock has precisely been a great way to drive growth in the smartphone segment, as well as it is moving very fast towards the Internet of Things trend.
In previous quarters, the company introduced new design wins in a number of various product types, like the connected home, smart lightning, and infotainment centers in automobiles. The company’s new designs will support the company to hasten its growth segments in those other than the mobile-phone market.
Conclusion
Skyworks Solutions has managed to outperform despite the weakness in Apple sales. The company’s diversified business model will help it outperform the market going forward, and investors can consider opening a position as the stock is currently trading at a beaten-down valuation.
