I mentioned earlier that I’m adding tools to 1ypeg.com to help foster accuracy, and I have early versions of those tools built now (still rough around the edges, so not publicly available yet). In any case, here are some interesting things about SWKS. One cautionary note, first: I’m still testing out these tools, so inaccuracies are possible. But with that out of the way:
The adjusted P/E right now is around 13.3. Over the past 3 years, SWKS has closed above an adjusted P/E of 13 on 66% of market days, and above an adjusted P/E of 11 on 92% of market days. Over the past 2 years, it has closed above an adjusted P/E of 13 on 98% of market days.
So over a recent (3 year) history, an adjusted P/E of 11 seems like a rock-bottom valuation. Over 2 years, today’s P/E is rock bottom. If management’s estimate of $8 adjusted EPS over the next 6-8 quarters is in the ballpark (and to put that into context, it’d require around 23% annualized EPS growth from here, whereas they’ve been doing 60%+), that means two years from now a P/E of 11 would translate into a price of around $88/share, which is about 25% upside from today’s prices. And if the market awards the company today’s P/E of 13, that’d be $104/share or 48% upside. At a P/E of 17 – which the company has closed above on 47% of market days over the past 3 years, so certainly not outrageous – the price would be $136, with 95% upside potential.
Stepping back to the business, I don’t understand at all why the stock has been falling based on these Apple rumors. Even if the rumors are true, they’re only about a single model of phone (the 6S), but SWKS makes money regardless of the Apple model of phone being sold, or even if business is going to a major competitor of Apple. Skyworks might make a little less money per phone, but if people are still buying phones then the company is going to do just fine. And I don’t see any reason why people would stop buying phones all of a sudden – even if this quarter shows a dip, my guess is that it will simply translate into higher demand later in the year.
And that’s just phones. As I’ve said before, I think a long-term investment in Skyworks goes beyond phones.
My own conclusion is that SWKS is an excellent long-term value right now. It could go lower based on historical ranges (a P/E of 11 would put the stock around $58), but we’re at the bottom 1/3 of valuation bands over the past 3 years, and at the bottom 2% over the past 2 years according to my figures. I just don’t think it’s likely that the business has been altered so radically over the past few months.
I personally added to my already overweight position today.
Just my 2 cents, of course! Please do your own due diligence.