SYNA Stock: Synaptics, Incorporated Has 127%+ Upside Potential

SYNA StockBack 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 up Synaptics stock.

Stocks for smaller companies like Synaptics trade based on global smartphone sales and, hence, are a play in this growing segment.

Synaptics, Incorporated’s fortunes have taken a hit, with SYNA stock underperforming the S&P 500. At $58.50 on Wednesday, Synaptics stock is well off its 52-week high of $94.48.

Trading just above its range low of $47.09, SYNA stock has a good risk-to-reward trade-off. The stock could rally over the next year if the demand for smartphones rises.

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Synaptics, Incorporated plays a key role in the building of smartphones. The company develops the touch screen interface technology used by popular phones such as the iPhone and the Samsung “Galaxy.” The company also provides its screen technology to numerous other smartphone makers. Its solution is found on over one billion devices.

Other devices in which you will find Synaptics’ technology include notebook computers, personal computer (PC) peripherals, and portable entertainment devices.

The Fundamentals Support Bull Thesis

Synaptics, Incorporated’s 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.

The company is expected to see its revenues contract by 2.2% to $1.6 billion in FY17 but rally by six percent to $1.7 billion in FY18. The positive news is that there’s a high estimate of $2.1 billion for FY18.

Another positive sign is that Synaptics, Incorporated is expected to deliver higher earnings in FY17, despite its revenues contracting. The company’s 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.

An interesting note is that Synaptics, Incorporated has seen its FY17 earnings estimates revised higher by 10 analysts. There have also been another three upward revisions for FY18. This rising trend of higher earnings is a bullish sign that suggest things are expected to improve.

Synaptics stock’s valuation looks intriguing at its current price. Synaptics, Incorporated trades at an attractive 10.6 times its estimated FY18 earnings per share (EPS).

The company’s 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

Synaptics, Incorporated’s stock chart shows Synaptics stock trending higher since the start of July, with a recent breakout around $55.00 from the previous sideways channel.

Synaptics, Incorporated NASDAQ Chart

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, Synaptics stock could target $80.00, which was the level that it traded at in April prior to the downside gap.

To play a potential upside move by SYNA stock, there are 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 around $14.80, which translates to a breakeven price of $64.58 for shares of Synaptics, Incorporated, or a 10.5% move from the current levels up to January 2018.