SWKS Momentum

SWKS. The price seems like it is having a hard time gaining traction. Staying above 80 has proven difficult these past few months. Now the analysts are calling for a worldwide slowdown in cell phone sales. While rev and eps growth look good for SWKS sentiment does not. Shares short have grown month over month with last month at 7.65%, the stock has been in a significant down trend since mid June. While the forward pe is 11, trailing pe is 19 and rev growth for the upcoming quarter is 15% and eps growth is projected at 26%. It may take awhile for investor sentiment and momentum to come back to this name.

[Above numbers from Capital IQ]

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It may take awhile for investor sentiment and momentum to come back to this name.
We had two data points pointing to slowdown in iPhone and in WorldWide CellPhone in general.
From the SWKS Investors relations presentation I listened to, the vast majority of earning are coming from CellPhones. They have futuristic plans to gain from trends like cars (still to be happening) and internet of things (no one know exactly what this is).
Based on that, the logical decision for me was to sell SWKS and so I did.
I really wanted to hold this for a long time, but this company lives and thrives on a healthy CellPhone market. My logic tells me otherwise, I really wish all others that decide to stay in the stock success.
P.S.
There were such negative reports before and AAPL managed to beat their numbers, so I may be wrong with my decision, but better be safe than sorry.

Wearables.

http://www.ibtimes.com.au/smart-phones-may-go-obsolete-five-…

As this article implies, I believe wearables will replace phones. Wearables still need WIFI and Skyworks.

lovepeace
long SWKS

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While the forward pe is 11, trailing pe is 19 and rev growth for the upcoming quarter is 15% and eps growth is projected at 26%. It may take awhile for investor sentiment and momentum to come back to this name.

As Buffett has said, time is the friend of the wonderful business.

So the only relevant question is whether or not Skyworks is a wonderful business. Given that they are the leader of only a few businesses able to provide the kind of integrated solutions they do, at a fantastic ROIC, yet only accounting for a tiny fraction of the costs of the relevant products, and serving some of the most important and high-growth areas of humanity…I’d say they qualify as a wonderful business.

So it is kind of irrelevant how long it takes for “investor sentiment” to acknowledge this. Actually, that’s wrong…the best thing for long-term owners is for the market to not acknowledge this for quite a long time…for this gives the business to buy back far more shares at low prices.

The critical issue, nevertheless, is how well the underlying business performs. As long as they deliver hugely important solutions to the rapidly-expanding connected world, all for a tiny sum of money per device, you’ll do fantastically being a part-owner of the business…as I became today.

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I really wanted to hold this for a long time, but this company lives and thrives on a healthy CellPhone market. My logic tells me otherwise, I really wish all others that decide to stay in the stock success.
P.S.
There were such negative reports before and AAPL managed to beat their numbers, so I may be wrong with my decision, but better be safe than sorry.

As far as better being safe than sorry, I’m not so sure about that. The bottom line is if you are going to be an individual investor, it’s all about opportunity cost. If you don’t have your money in SWKS, you’re going to have to put it somewhere else. What is better right now?

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As far as better being safe than sorry, I’m not so sure about that. The bottom line is if you are going to be an individual investor, it’s all about opportunity cost. If you don’t have your money in SWKS, you’re going to have to put it somewhere else. What is better right now?

Let me explain, when I studied SWKS I came to conclusion that their major part of their growth is depended on CellPhones. I marked that it has to be watched carefully. Now we’ve got two different indication the CellPhone market is cooling. If this is true it will affect SWKS business negatively. I decided to believe this piece of information and thus decided to sell.
What am I doing with my money?
I am in SKX now (for instance) the slice I allocate to SWKS is on the sideline waiting for me to identify Excellent Business selling at a good price. With this elevated market, it is becoming harder and harder but I must exercise patience.

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This one raises the difficult problem where you currently have a small, not huge, profit but one which is eroding before your eyes and could be eliminated and could also turn into a loss. You have to take a decision on whether you are holding value (hold and consider buying more if it falls further) or whether value is uncertain (sell: a bird in the hand etc.) Can be difficult! I have had it twice in as many days, both in favorite holdings.

In each case, my decision was to take the bird in the hand because I considered the chance of being able to buy the stocks lower than I had were reasonably good. It’s a risky game though. It took a cigarette’s thought and I am still not sure I was right.

Tech, is easier to distrust though. Someone mentioned Buffett in relation to SWKS; there is of course no way B. would regard SWKS as a high-quality company. It’s nothing like ketchup or your favorite chocolate bar at all!

It’s a high-quality technology company which is quite different.

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Let me explain, when I studied SWKS I came to conclusion that their major part of their growth is depended on CellPhones. I marked that it has to be watched carefully. Now we’ve got two different indication the CellPhone market is cooling. If this is true it will affect SWKS business negatively. I decided to believe this piece of information and thus decided to sell.

Fair enough.

But consider some numbers/facts:

  1. Apple (“Foxconn”) is up to a whopping 44% of sales for past fiscal year (see page 62 of 10-K).

  2. Apple grew iPhone units sold last fiscal year by 37%. For simplicity’s sake, let’s just treat that as representing all units sold to Apple (though the growth rates for “other” may differ, probably doesn’t affect the argument much).

  3. Worldwide smartphone growth (including iPhone) grew roughly 28% (less precise data available).

  4. Worldwide smartphone ex-iPhone grew less than 28%.

  5. So despite the fact that worldwide shipments of smartphones only grew 28%, and iPhones 37%, revenue for Skyworks skyrocketed 42%.

This would all indicate that everything-not-Apple must have grown about 46% (revenue). And since smartphones ex-iPhone only grew about 23%, all the non-smartphone business Skyworks is doing is growing well over 46%.

Overall, then, Skyworks is growing and performing far better than the smartphone market, however you slice it. Heck, they grew EPS 72% while the smartphone market only grew 28%. So even if the smartphone market cools, that does not spell doom and gloom for Skyworks. Maybe their EPS won’t grow 72%. Indeed, CEO is projecting in the neighborhood of 40-56%; this suggests two things: Skyworks can squeeze more revenue/earnings per phone supplied, and two, the non-phone cases they’re addressing are growing quite well.

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I agree that SWKS has lost momentum and has been frustrating for a shareholder, but the business fundamentals make too much sense to sell.

Most of the people who write a lot of this “research” have a dilemma. If they say iphone sales are awesome! Tech is the future! and are right, no big deal. If they say that and are wrong, they lose their job.

If they say the iphone has reached a peak, sales are slowing, etc; and they are right, they are smart for issuing a warning. If they are wrong, it’s a surprise beat by the company and everyone is happy. But they keep their job.

The other chip leaders, AVGO, NVDA, QRVO seem to have had more momentum, but SWKS still looks like it is being accumulated. As long as it holds above the 75-77 level, I see no reason to sell.
If it breaks below that, it probably means something is wrong with the business that I am not aware of or that the market in general is crashing, but that’s my line in the sand for it

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This morning UBS , Mizuho,BAC/ML all lower targets for iPhone sales.

Rob

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SWKS green so far in spite of the broker’s lowering targets for iPhone sales. In T/A land that is a “tell”. We shall know in the fullness of time.

Rob

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