With many analysts expecting the sales of Apple’s (AAPL, Financial) iPhone to decline for the first time ever, Apple’s stock has lost considerable value over the last few weeks and is off over 25% from its all-time highs. Given that Apple generates about 60% of its revenue from iPhones, investors may be rightly concerned about a slowdown in sales.
Apple, however, is not the only stock that has taken a beating. Understandably, all of the Apple suppliers have also sold off in the last few months. The likes of Skyworks (SWKS, Financial), Qorvo (QRVO, Financial), Avago (AVGO, Financial), etc. are off considerably from their all-time highs.
While the selloff in Apple's suppliers is logical, I think Skyworks Solutions looks very attractive at the current valuation. Skyworks has lost almost 40% of its value in the last few months, and I believe investors have overreacted to the news of the iPhone sales decline.
The primary reason why the Skyworks Solutions selloff was unwarranted is the company’s diverse business model. Over the years, Skyworks has reduced its exposure to Apple and iPhone sales to only account for about 20% of the company’s revenue.
Apple has been known to dominate its suppliers, especially the ones who rely heavily on it for revenue. As a result, Skyworks has consistently reduced its dependence on Apple. Therefore, it is irrational for investors to have sold off Skyworks on the fears of iPhone sales.
The Street it not appreciating Skyworks’ diverse business model. Skyworks has managed to beat earnings and raise guidance for the last six quarters and the apparent weakness in iPhone sales hasn’t affected the stock until now. While the likes of Qorvo are slashing their guidance, Skyworks has kept its guidance intact, which signifies that the company’s business model can withstand the test of a decline in iPhone sales.
Moreover, Skyworks’ dollar content has also grown in the iPhone 6 and this will probably offset a minor decline in the sales of the device. All in all, I don’t think investors should relate Skyworks entirely with Apple, and I believe the company can continue delivering even if there is a minor decline in iPhone sales.
Conclusion
With Skyworks down over 40% from its all time-highs, investors should start accumulating the stock. The fears regarding a decline in iPhone sales are overblown. Given Skyworks’ strong growth prospects, I think the stock is undervalued and is a buy.
