Skyworks Solutions Inc (SWKS): Is Sky the Limit? No.

Earlier this year, Qualcomm announced its newest QUALCOMM, Inc. (NASDAQ:QCOM) Snapdragon 800 and 600 processors, which deliver up to 75% and 40% better performance than the Qualcomm Snapdragon S4 Pro processor, respectively, at lower power. Qualcomm continues to dominate in the wireless end with its leading product development.

As seen from the chart below, Skyworks’ gross profit margin has been relatively stable in the last five years, whereas the other three companies have witnessed a decline of their gross profit margins since early 2011.

The revenue growth rate for Skyworks had declined since mid-2010 and started rebounding in late 2012, as seen from the chart below. On the other hand, Qualcomm and TriQuint Semiconductor’s revenue growth rate had declined in early 2013 after peaking in early 2012 and early 2011, respectively. RF Micro’s revenue growth rate has fluctuated widely in the past five years, but started surging in early 2013.

Fundamentally, Skyworks has stable revenue growth rate and a strong, consistent gross profit margin. Skyworks also has a higher revenue growth rate than the industry average. However, from the valuation perspective, Skyworks is undervalued with its P/E of 19.2, which is well below the industry average of 49.5. Skyworks’ Forward P/E of 9.6 is also below the S&P 500’s average of 14.6.

Bottom line

With in-demand products and strong diversification, Skyworks’ high revenue growth rate is expected to be maintained. Supported with a solid balance sheet and strong cash flows, Skyworks continues to be a solid bet to ride multiple uptrends, including LTE and tablets.

The article Is Sky the Limit? Not for This Company originally appeared on and is written by Nick Chiu.

Nick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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