Solomon's Select, by Mark Robertson, Managing Partner
Posted on September 1st, 2015
Ken Kavula stole the show during our recent Round Table with his nomination of SWKS, a specialty semiconductor company.
The audience vote at the August Round Table was a landslide. The kind of landslide that takes no prisoners. Despite the presentation of a couple of worthy and formidable nominees, Ken Kavula stole the show with his nomination of Skywork Solutions (SWKS) … a specialty semiconductor company that has beaten a world class path into the Internet of Things.
Our monthly Round Table generally takes place on a Tuesday evening near the end of every month. We sometimes switch the session to a Saturday morning for some variety or to avoid Hugh’s robust travel schedule. The webcasts are FREE and you’re welcome to invite friends, family or any should-be long-term investor that you know. A handful of stocks are presented complete with analysis and a nudge toward favorite resources for further study, reinforcement and verification. We archive almost all of the sessions on the MANIFEST Forum. You can also use YouTube to track down recorded sessions and/or to share them with your fellow long-term investors. Here is a link to August Round Table starting at the SWKS segment.
Skyworks Solutions (SWKS): Business Model Analysis. Earnings “went positive” and stayed positive fpr Skyworks back in 2005. They’ve not looked back, continuing to develop and market scores of analog and mixed signal semiconductors worldwide. Growth appears to be capable of sustaining double digits and profitability has steadily strengthened. Depending on your outlook for these key characteristics, the return forecast is 10-15%.
The growth rate forecast (based on 2014-2019) is 14.7%. Value Line is using 17.5% for their 3-5 year forecast. Morningstar expects 8% growth over the next five years. Based on the visual analysis of the business model, 12-15% seems feasible.
2014 delivered a net margin of 20.0%. Value Line has an average net margin forecast of 26.8% for 2015, 2016 and 2019. This is probably the most influential assumption about the company and analysis. Since emerging and sustaining profitability less than ten years ago, net margin has advanced and is probably headed for a plateau. Based on industry and inherent company characteristics, what level of profitability do you believe is achievable and sustainable? Your answer will dictate whether this stock is in a “buy zone.”
Value Line is using 20x for the 3-5 year projection. The analyst consensus is a little more optimistic, checking in at 25×. At $83, the return forecast is approximately 15%. Phone home.