Skyworks Solutions (NASDAQ:SWKS) produces a wide range of radio frequency chips for the mobile, automotive, wireless infrastructure, home automation, and industrial markets. It generated 51% of its revenue from Apple (NASDAQ:AAPL) last year, so its stock often rises and falls with that of the iPhone maker.

Skyworks' business also goes through cycles. For example, Skyworks' stock has rallied nearly 30% over the past five years, but has doubled to an all-time high over the past 12 months. Let's see if Skyworks is still worth buying today.

Lighted wires running along a dark background

Image source: Getty Images.

Growth has been slowing

Skyworks' revenue and earnings growth decelerated significantly in fiscal 2019, which ended last September.

Growth (YOY)

2015

2016

2017

2018

2019

Revenue

42%

1%

11%

6%

(13%)

Non-GAAP EPS

63%

6%

16%

12%

(15%)

Source: Company quarterly reports. Non-GAAP = adjusted.

Skyworks attributed the slowdown to its loss of orders from Huawei after the U.S. blacklisted the Chinese tech giant, which accounted for 10% of its sales in fiscal 2017, and sluggish demand for smartphones. It partly offset those weaknesses with stronger sales of IoT (Internet of Things) and analog chips for non-smartphone markets.

In the first six months of fiscal 2020, Skyworks' revenue and non-GAAP EPS fell 7% and 8% year-over-year, respectively. The COVID-19 crisis disrupted its supply chains, it was still prohibited from selling chips to Huawei, and demand for new phones, including iPhones, remained sluggish throughout the crisis.

Skyworks' business is gradually stabilizing

Skyworks expects its revenue to decline 7%-13% annually in the third quarter, and for its non-GAAP EPS to drop about 16%. It widened its revenue guidance range (in comparison to previous quarters) to reflect the uncertainties regarding COVID-19.

A 5G chip on a circuit board.

Image source: Getty Images.

The headwinds from the first half of the year will likely persist, but Skyworks also believes stay-at-home trends will continue boosting demand for PCs, tablets, wearables, and other wireless devices.

Skyworks' non-GAAP gross margin declined annually from 50.9% to 50.1% in the first half of 2020, but it expects that figure to remain above 50% in the second half of the year. Its non-GAAP operating margin contracted from 35.5% to 33.9% in the first half, but it didn't offer concrete forecasts regarding its operating expenses for the second half.

Skyworks didn't offer any guidance for the full year, but Wall Street expects its revenue and earnings to decline 7% and 9%, respectively. Those estimates suggest Skyworks hit a cyclical trough in 2019, and its outlook could improve after the pandemic passes and smartphone sales accelerate again as new 5G devices hit the market.

Maintaining its buybacks and dividends

Unlike many other companies, Skyworks is continuing to repurchase its shares and pay dividends throughout the crisis. It bought back $358 million in shares in the first half of 2020 to reduce its diluted share count 3% from a year earlier.  

It paid out $150 million in dividends during that period, and it spent just 31% of its free cash flow on that payout over the past 12 months -- which leaves it plenty of room to boost its dividend, which currently yields 1.3%.

Skyworks' balance sheet is also sound, with $1.1 billion in cash and investments with no debt at the end of last quarter.

These shareholder-friendly moves, along with the balance sheet numbers and Skyworks' reasonable forward P/E ratio of 19, should set a safety net under the stock at its all-time highs.

Is Skyworks' stock worth buying?

Skyworks' business could improve in the second half of 2020 and 2021, but an escalation of the trade war, potential delays for Apple's iPhone 12, and other unpredictable developments could dampen its recovery.

Skyworks' valuation suggests the stock hasn't gotten ahead of its business yet, so I think it's still worth accumulating at these levels. Nonetheless, investors shouldn't get carried away and back up the truck on this cyclical stock.