Strong 5G Demand Could Push Skyworks Solutions Stock Past $200

Up almost 2.5x from its low in March 2020, at the current price of $177 per share, we believe Skyworks Solutions stock (NASDAQ: SWKS) has further upside potential. Skyworks Solutions, a radio frequency and mobile communications semiconductor manufacturer, has seen its stock rise from $73 to $177 off its March 2020 low, a lot more than the S&P which increased by almost 90% from its lows. Further, the stock is up almost 1.5x from the level it was at before the pandemic. We believe that Skyworks stock could rise around 15% to regain its early-2021 high of $204, driven by expectations of continuing demand growth, and strong Q2 2021 earnings. Our dashboard What Factors Drove 165% Change In Skyworks Solutions Stock Between 2018 And Now? has the underlying numbers behind our thinking.

Skyworks stock’s rise since late 2018 came despite a 13% drop in revenues from $3.87 billion in FY 2018 to $3.36 billion in FY 2020. Net margins rose from 23.7% to 24.3% over this period, and combined with a 7% drop in the outstanding share count, EPS (earnings-per-share) dropped from $5.06 to $4.84 over this period.

However, Skyworks’ P/E (price-to-earnings) multiple jumped from 13x in 2018 to 32x by 2020 end, and has since rallied to 37x currently. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns led to a drop in demand for semiconductor materials across a variety of industries, but demand has started rising steadily since late-2020. Also, Skyworks manufactures semiconductors used in mobile communications systems, and with the rapid global roll-out of 5G, Skyworks stands to benefit further. This is evident from Skyworks’ Q2 2021 earnings, where revenues came in at $1.17 billion, a strong rise from $766 million for the same period last year. Operating expenses rose at a slower rate, and this saw operating income rise from $200 million to $375 million over this period. Despite a slightly higher effective tax rate, EPS rose from $1.07 in Q2 ’20 to $1.97 in Q2 ’21.

Going forward, we believe demand for the company’s products will remain strong, and that revenues stand to benefit in the near-to-medium term. Additionally, if the company can continue controlling expenses going forward, a rise in investor expectations could drive up the company’s P/E multiple, helping the stock regain its April 2021 high of around $204, an upside of around 15% from present levels.

While Skyworks Solutions stock may move higher, it is helpful to know how its peers stack up. Skyworks Solutions Stock Comparison With Peers summarizes how Skyworks Solutions compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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