Has Market Pressure Created an Opportunity in Skyworks Solutions After This Year’s 17% Drop?

• Wondering whether Skyworks Solutions is actually a bargain or if there is more risk than reward waiting beneath the surface? You are not alone, as plenty of investors are re-evaluating what makes this stock compelling right now.
• After a challenging period, Skyworks shares have slipped by 6.7% over the last week and are down nearly 17% year to date. This hints at both shifting risk perceptions and potential for a rebound if sentiment changes.
• Recent headlines have focused on the broader semiconductor sector facing supply chain normalization and shifting demand, with Skyworks specifically navigating changes in key end markets such as mobile and automotive. News of industry-wide inventory adjustments and evolving trade policy has kept the spotlight on the stock as investors look for the next catalyst.
• Currently, Skyworks scores a strong 5 out of 6 on our valuation checks. This suggests the shares might offer solid value. Let us break down the typical ways of measuring value, and keep reading because we will explore an even better approach at the end of this article.

Find out why Skyworks Solutions's -15.7% return over the last year is lagging behind its peers.

Approach 1: Skyworks Solutions Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates the value of a company by projecting its future cash flows and discounting them back to today’s value. This approach is commonly used to get a sense of whether a stock is under or overvalued based on its ability to generate cash in the years ahead.

For Skyworks Solutions, the most recent Free Cash Flow stands at $1.36 billion. Analysts offer forecasts for the next five years, with expectations that annual Free Cash Flow will fluctuate between roughly $915 million and $1.23 billion by 2029. To cover a ten-year horizon, further projections are algorithmically extrapolated beyond analyst estimates.

Taking all these assumptions into account, the DCF model pegs Skyworks Solutions’ intrinsic value at $98.57 per share, using the cash flow projections and an appropriate discount rate. Compared to the recent share price, this implies the stock is trading at a 25.5% discount to its estimated fair value.

In simple terms, the analysis suggests Skyworks Solutions is currently undervalued based on its future cash-generating potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Skyworks Solutions is undervalued by 25.5%. Track this in your watchlist or portfolio, or discover 836 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Skyworks Solutions.

Approach 2: Skyworks Solutions Price vs Earnings

The price-to-earnings (PE) ratio is a widely used metric for valuing profitable companies like Skyworks Solutions. It tells investors how much they are paying for each dollar of earnings. This makes it a helpful and familiar way to compare company valuations, especially when steady profits are on the table.

A company's "normal" or "fair" PE ratio can shift depending on its earnings growth prospects and perceived risks. Higher growth companies often command higher PE ratios, while companies with increased risk or slower growth trade at lower multiples.

Currently, Skyworks Solutions trades at a PE ratio of 27.6x. This is lower than both the semiconductor industry average of 35.8x and the average among Skyworks’ direct peers, which stands at 50.5x. At first glance, this suggests the stock might be trading at a discount relative to the wider market and its closest competitors.

However, Simply Wall St uses a proprietary "Fair Ratio" as a more refined benchmark. This Fair Ratio is designed to reflect what Skyworks' PE should be, factoring in not just industry averages, but also specifics like its future earnings growth, profit margins, size, and risk profile. For Skyworks, the Fair Ratio is calculated at 40.1x. This offers a more nuanced view than a simple peer or industry comparison.

Given that Skyworks' actual PE of 27.6x is well below its Fair Ratio of 40.1x, the analysis points to the shares being undervalued according to this metric.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1402 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Skyworks Solutions Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a simple but powerful framework that allows you to tell the story behind a company, combining your perspective on its business outlook with your assumptions for future revenue, earnings, and profit margins. By connecting a company’s real-world story to concrete financial forecasts, Narratives help investors estimate their own fair value and make smarter buy or sell decisions.

Available to millions of investors on Simply Wall St’s Community page, Narratives make investing more accessible by letting you compare your calculated fair value to the current price. They automatically stay up to date as new news or earnings are released. For example, one Skyworks Solutions Narrative might focus on expanding into higher-margin automotive and IoT markets, projecting strong growth and supporting a higher price target. A more cautious Narrative could highlight dependence on a single customer and intense competition, resulting in a much lower fair value estimate. Narratives empower you to invest with conviction, rooted in the facts most relevant to your outlook, and adjust your view as the story unfolds.

Do you think there's more to the story for Skyworks Solutions? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com