Demand Growth Expectations To Take Synaptics Incorporated Stock Past $150?

by Trefis Team
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Up almost 3x from its low in March 2020, at the current price of $137 per share, we believe Synaptics Incorporated stock (NASDAQ: SYNA) has further upside potential. Synaptics, a human interface hardware and software developer, has seen its stock rise from $47 to $137 off its March 2020 low, much more than the S&P which increased by over 85% from its lows. Further, the stock is up around 70% from the level it was at before the pandemic. However, we believe that Synaptics stock could rise around 10% to set fresh highs above $150, driven by expectations of steady demand growth and strong Q3 2021 results. Our dashboard What Factors Drove 269% Change In Synaptics Stock Between 2018 And Now? has the underlying numbers behind our thinking.

Synaptics stock’s rise since late 2018 came despite a 21% drop in revenues from $1.63 billion in FY 2018 to $1.29 billion in FY 2020 (Synaptics’ fiscal year ends in June). Combined with a 3.5% rise in the outstanding share count, RPS (revenue-per-share) dropped 24% from $47.70 to $36.40 over this period.

However, Synaptics’ P/S (price-to-sales) multiple rose from 0.8x in 2018 to 2.5x by 2020 end, and has further risen to 3.8x currently. We believe that the company’s P/S ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of Coronavirus, and the resulting lockdowns initially hampered demand for laptops and mobile phones, as new devices were just not a priority for people. However, with work from home becoming the new trend, demand for mobile devices has risen. This has not benefited Synaptics yet, as is evident from the company’s revenues in Q3 2021, which came in at $326 million, roughly unchanged from $328 million for the same period last year. However, Synaptics has managed to successfully cut costs with operating margins making a significant jump, from 5.8% to 9.7% over this period. Combined with a lower effective tax rate, EPS jumped more than 2.5x from $0.15 to $0.39 over this period.

Additionally, with laptop and smartphone sales expected to stay strong, we believe demand for the company’s products will pick up, and that revenues stand to benefit in the medium term. Further, if the company can successfully continue controlling expenses going forward, a rise in investor expectations could drive up the company’s P/S multiple. We believe that Synaptics stock can rise around 10% from current levels, to set new highs above $150.

While Synaptics stock may move higher, it is helpful to know how its peers stack up. Synaptics Stock Comparison With Peers summarizes how Synaptics compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

 

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