Synaptics (NASDAQ:SYNA) might not be a family identify, however the elements it makes are seemingly in merchandise that you simply use in your family every day. From Apple‘s (NASDAQ:AAPL) iPhones to laptops to good residence home equipment, Synaptics’ tech is utilized in a broad vary of functions.
That is a part of why Synaptics seemed like a top growth pick initially of 2021, and up to now the human interface options supplier has not upset. Its positive factors in 2021 have handsomely outpaced these of the broader market.
The excellent news is that traders nonetheless have a chance to leap on to this gravy practice. The tech firm has extra development forward, and extra importantly, it’s buying and selling at cheap valuation multiples regardless of its rally.
The PC enterprise has gained momentum
Synaptics will get its income from three segments — private computer systems (PC), cellular units, and the Internet of Things (IoT).
In its fiscal 2021 second quarter, which ended Dec. 26, 2020, the PC enterprise equipped 26% of the corporate’s income as sturdy end-market demand lifted the section to record-breaking outcomes. Synaptics had forecast that the PC enterprise’s contribution would soar to 30% within the not too long ago concluded fiscal Q3. CEO Michael Hurlston stated he believes it can proceed to enjoy strong momentum all through 2021.
Hurlston stated that the demand for gear to assist distant work and on-line studying has remained sturdy after final 12 months’s preliminary coronavirus-driven spike. He believes that the upper run fee of the PC enterprise is now extra sustainable as persons are shopping for notebooks to boost productiveness. Market analysis agency Canalys estimates that gross sales of notebooks may enhance by 9.4% in 2021 and three.1% in 2022.
What’s extra, the pocket book market is predicted to clock 4% annual development by way of 2025. Equally, gross sales of desktop PCs are anticipated to extend at a compound annual development fee of 4% by way of 2025. As such, demand for Synaptics’ touchpads, biometric options, show interfaces, and different associated PC options ought to stay sturdy, particularly contemplating the corporate’s dominant place.
Synaptics reportedly holds greater than 80% share of the fingerprint sensor market and claims to be the No. 1 supplier of touchpads utilized in pocket book PCs. The biometric fingerprint sensor market is predicted to hit $9.4 billion in worth by 2027 as in comparison with simply $2.9 billion in 2019, based on Allied Market Analysis. All of that is excellent news for Synaptics shareholders. The corporate is on observe to benefit from this chance as it’s supplying its fingerprint sensors to main PC makers such as Lenovo.
Cellular and IoT are in nice form
The cellular enterprise would be the subsequent essential development driver for Synaptics — the section provides a 3rd of its whole income. This enterprise is in effective kind because of Synaptics’ provider relationship with Apple, whose newest iPhones have been extraordinarily scorching sellers. Synaptics’ stated its largest cellular section buyer accounted for 21% of its whole income in its fiscal Q2. That buyer is almost certainly Apple — Synaptics’ cellular income has shot up nicely because the iPhone 12 sequence went into manufacturing.
Synaptics has already indicated that the brand new iPhones are utilizing its OLED contact controllers. Apple has reportedly been raising its production forecasts for the iPhone 12, and its subsequent iteration is predicted to be a fair greater gross sales success because the 5G smartphone improve cycle continues. Provided that, this partnership may drive important development for the part maker over the subsequent couple of years.
And eventually, Synaptics expects its IoT enterprise to develop at a sooner tempo than the broader market and grow to be its greatest income. The IoT enterprise is projected to supply 41% of Synaptics’ income this fiscal 12 months, up from 24% in fiscal 2020. The corporate expects the IoT section to achieve 55% of whole income in the long term.
That will not be stunning as Synaptics is making notable progress in IoT niches such because the automotive market, the place greater than 13 OEMs (unique tools producers) are anticipated to make use of its chips. The corporate additionally anticipates that the demand for smart-home merchandise may double throughout the subsequent 12 months. Thanks to those catalysts and the design wins it already has within the bag, Synaptics forecasts that it will probably grow at a faster pace than the general IoT market’s anticipated CAGR of 10% to fifteen% within the coming years.
Synaptics remains to be an excellent purchase
Synaptics trades at simply 17 instances ahead earnings and 35 instances trailing earnings, indicating that analysts count on a severe soar on the underside line. That is evident from the chart beneath.
That earnings development appears achievable. Synaptics estimates that its non-GAAP working margin may soar to 30% in the long term as in comparison with the fiscal 2021 estimate of 23%. The determine stood at 17% in fiscal 2020, however the shift to higher-margin businesses has helped the corporate make fast progress on this entrance. So, Synaptics appears well-placed to ship long-term earnings development and that would result in extra upside, which makes it a growth stock value shopping for given its cheap valuation multiples.
This text represents the opinion of the author, who might disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one among our personal — helps us all assume critically about investing and make choices that assist us grow to be smarter, happier, and richer.