Back Up the Truck on SYNA Stock?
The prospects and growth for suppliers of technologies for smartphones and tablets are correlated to how well new phones are received. There is anxious anticipation brewing for the upcoming launch of the Apple Inc. (NASDAQ:AAPL) “iPhone 7” in mid-September. Suppliers to Apple and other smartphone makers, such as Synaptics, Incorporated (NASDAQ:SYNA), are hoping for a great reception that will drive SYNA stock.
Stocks for smaller companies like Synaptics trade based on global smartphone sales and, hence, are a play in this growing segment.
The fortunes of SYNA have taken a hit, with SYNA stock underperforming the S&P 500. At $58.50 on Wednesday, the share price is well off its 52-week high of $94.48.
Trading at just above its range low of $47.09, SYNA has a good risk-to-reward trade-off that could rally over the next year if the demand for smartphones rises.
Synaptics plays a key role in the building of a smartphone. The company develops the touch screen interface technology used by widely popular phones such as the iPhone and the Samsung “Galaxy.” SYNA also provides its screen technology to numerous other smartphone makers, with its solution found on over one billion devices, according to the Synaptics web site.
Other devices in which you will find SYNA technology include notebook computers, personal computer (PC) peripherals, and portable entertainment devices.
The Fundamentals Support Bull Thesis
Revenues rose sequentially in two straight years, from $663.6 million in FY13 ended in June to $947.5 million in FY14, and then to $1.7 billion in FY15 prior to a slightly weaker $1.67 billion in FY16.
Synaptics is expected to see revenues contract by 2.20% to $1.63 billion in FY17 but rally 6.0% to $1.73 billion in FY18, according to Thomson Reuters. The positive is that there is a high estimate of $2.12 billion for FY18.
Another positive is that SYNA is expected to deliver higher earnings in FY17, despite revenues contracting. Earnings are predicted to come in at $5.18 per diluted share in FY17 versus $4.76 per diluted share in FY15. This is expected to be followed by $5.53 per diluted share in FY18, according to Thomson Reuters.
An interesting note is Synaptics has seen its FY17 earnings estimates revised higher by 10 analysts, and another three upward revisions for FY18. This rising trend of higher earnings is a bullish sign that suggest things are expected to improve for SYNA.
The valuation looks intriguing at the current price. SYNA stock trades at an attractive 10.6 times its FY18 EPS.
The price/earnings to growth (PEG) ratio of 0.84 is attractive for a growth stock and implies that SYNA stock is trading at below its five-year average annual earnings growth rate.
Why Synaptics Could Trade Up to $80
The chart of Synaptics shows the stock trending higher since the start of July, with a recent breakout at around $55.00 from the previous sideways channel.
Chart courtesy of StockCharts.com
SYNA stock has reclaimed its 50-day moving average (MA) of $53.52. The technical target, if the breakout holds, is $65.00 and the 200-day MA is $70.00. Above this, SYNA could target $80.00, which was the level that the stock traded at in April prior to the downside gap.
To play a potential upside move, there are SYNA call options available as far out as January 2018 that would allow a rally to materialize. For instance, the $50.00 call expiring in January 2018 is trading at around $14.80, which translates into a breakeven of $64.58, or a 10.5% move from current levels up to January 2018.