I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series.

Next up: Skyworks Solutions (Nasdaq: SWKS). Is this maker of signal processors for mobile devices the real thing? Let's get to the numbers.

Foolish facts

Metric

Skyworks Solutions

CAPS stars (5 max)

****

Total ratings

521

Percent bulls

93.5%

Percent bears

6.5%

Bullish pitches

65 out of 69

Highest rated peers

Integrated Device Technology, DSP Group, Power Integrations

Data current as of Sept. 25.

Much like its closest peer, RF Micro Devices (Nasdaq: RFMD), Skyworks gets plenty of support among Fools. And for good reason: Skyworks recently increased its fourth-quarter revenue guidance to $310 million from $300 million.

"Their key customers include Motorola (NYSE: MOT), Research In Motion, Siemens, LG Electronics and Broadcom. There is a great demand for Skyworks' expertise, and their sales should continue to grow," wrote Foolish investor HarryInBC in March.

Analysts see a growth story here, as well. According to Capital IQ, the Street is expecting 15% annual earnings improvement for the foreseeable future.

The elements of growth

Metric

Last 12 Months

2009

2008

Normalized net income growth

104.1%

(0.4%)

42.1%

Revenue growth

22.3%

(6.7%)

15.9%

Gross margin

41.9%

40.1%

39.9%

Receivables growth

37.6%

(21.6%)

(12.3%)

Shares outstanding

177.7 million

172.8 million

165.6 million

Source: Capital IQ, a division of Standard & Poor's.

Judging by this table, they have reason to be optimistic. Let's review:

  • Normalized net income is rising right alongside revenue, exactly what we want to see in an emerging growth story.
  • Gross margin is also rising consistently, another good sign and suggestive of Skyworks' increasing pricing power.
  • If there's a problem here it's with shares outstanding. Management has authorized 12 million new shares in two years, diluting earlier owners by more than 7%. I'm willing to forgive this for two reasons. First, the dilution is due to common stock shelf registrations for funding growth. Second, management's record for increasing returns on capital suggests the dilution won't be for naught.

Competitor and peer checkup

Competitor

Normalized Net Income Growth (3 yrs.)

Avago Technologies (Nasdaq: AVGO)

Not available

Hittite Microwave (Nasdaq: HITT)

8.6%

Linear Technology (Nasdaq: LLTC)

(4.2%)

Maxim Integrated Products (Nasdaq: MXIM)

3.2%

RF Micro Devices

15.1%

Skyworks Solutions

54.9%

Source: Capital IQ, a division of Standard & Poor's. Data current as of Sept. 25.

Here's where Skyworks really shines. Not only is it the best growth story among peers, but there isn't even a horse race. Also, recent growth (104.1%) is outpacing historical growth. Acceleration like this often foreshadows excellent stock returns, and Skyworks is already up 50% year-to-date.

Grade: Sustainable
My favorite stock stories are the ones where the growth opportunity is so big as to be largely undefined, and I think that's what we have with Skyworks and its communications chips for smartphones and related devices. I've rated the stock to outperform in my CAPS portfolio.

Now it's your turn to weigh in. Do you like Skyworks Solutions at these levels? Would you make it one of our 11 o'clock stocks? Let the debate begin in the comments box below, and when you're done, click here to get today's 11 o'clock portfolio pick.

You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares of any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy thinks Monty Python is sustainably funny.