Is Skyworks Solutions Inc (NASDAQ:SWKS) Undervalued After Accounting For Its Future Growth?

Skyworks Solutions Inc (NASDAQ:SWKS) is considered a high growth stock. However its last closing price of $70.76 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question.

View our latest analysis for Skyworks Solutions

What are the future expectations?

Investors in Skyworks Solutions have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 25 analysts is bullish with earnings per share estimated to surge from current levels of $5.066 to $8.963 over the next three years. On average, this leads to a growth rate of 15% each year, which signals a market-beating outlook in the upcoming years.

Is SWKS's share price justified by its earnings growth?

Skyworks Solutions is trading at quite low price-to-earnings (PE) ratio of 13.97x. This tells us the stock is undervalued relative to the current US market average of 17.97x , and undervalued based on its latest annual earnings update compared to the semiconductor average of 19.05x .

Given that SWKS's price-to-earnings of 13.97x lies below the industry average, this already indicates that the company could be potentially undervalued. But, since Skyworks Solutions is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 13.97x and expected year-on-year earnings growth of 15% give Skyworks Solutions a low PEG ratio of 0.94x. This means that, when we account for Skyworks Solutions's growth, the stock can be viewed as fairly valued , based on its fundamentals.

What this means for you:

SWKS's current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you're a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Financial Health: Are SWKS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has SWKS been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of SWKS's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.