Keystone
Internet of things (IoT) business has always been a key catalyst for Synaptics.
Recent design victories show that the company's revenue can continue to grow.
Valuations are relatively cheap and investors should now consider buying.
Synaptics's stock has made handsome returns over the past year. The company worked miracles by moving from a commoditized smartphone chip business to the Internet of things (IoT), leading to a surge in profit margins and profits, which in turn led to a sharp rise in the share price.
Investors who have missed Synaptics so far should not be disappointed: the chipmakers have a strong catalyst to help it maintain its momentum in the stock market. However, the company will report results for the first quarter of fiscal 2022 on November 4, and it may be a good idea to buy Synaptics before. A series of strong performance figures and strong guidance could make the technology stock more expensive.
Let's take a look at why Synaptics is still the top growth stock to buy right now, even though its share price has more than doubled in the past year.
Synaptics can shatter expectations again
According to the guidelines issued by Synaptics in August 2021, revenue for the first quarter is expected to be $370 million and adjusted earnings per share will be $2.60. Wall Street's expectations are in line with Synaptics's guidance, so don't be surprised to see the company continue its winning streak, exceeding market consensus forecasts. Over the past four quarters, Synaptics has easily exceeded Wall Street's earnings forecasts, a trend that is likely to continue because of strong demand for chips.
CEO Dean Butler pointed out that Synaptics's customer demand has exceeded the company's supply. However, in an earnings conference call in August, management said the backlog of revenue guidelines for the year 2022 was at least 90 per cent. This suggests that Synaptics's financial performance in fiscal year 2022 may be stronger than expected due to strong order inflows.
Analysts expect Synaptics's revenue for the current fiscal year to grow 11.6 per cent to $1.5 billion, while earnings per share are expected to jump to $10.08 from $8.26 in fiscal 2021. In the first quarter of this fiscal year, the median revenue in the guidance range is likely to grow by nearly 13% year-on-year, while adjusted earnings are expected to grow by 40.5% year-on-year. The company's adjusted gross profit margin is expected to reach 57% to 58%, compared with 49.7% in the same period last year.
A closer look at the main catalysts for Synaptics shows that the company's business performance is likely to improve over the course of the year.
There is a momentum of sustained growth.
The Internet of things business is the largest source of income for Synaptics. The company expects 51% of its revenue in the first quarter. It is worth noting that Synaptics's Internet of things revenue grew 143% year-on-year in the fourth quarter of fiscal 2021, while the division's full-year revenue grew by 83%.
Considering the new design orders recently reported by Synaptics, it is expected that the Internet of things business can maintain such a rapid growth rate. For example, with the widespread recognition of Synaptics's display and touch solutions, automotive vertical technology can play an important role in the growth of the company's Internet of things business. More than 20 automotive OEMs in the US, Europe and Asia use the company's chips or have approved them for 45 models.
Synaptics expects annual revenue from the automotive vertical business to reach $100m this fiscal year, nearly a year ahead of the company's original target. Meanwhile, Synaptics expects revenue from the vertical Internet of things to double in the next 18 months.
All this suggests that Synaptics's biggest business can continue to make a difference for the company. Investors have all the more reason to buy the company, which is expected to grow its profits by 15% a year over the next five years. By contrast, Synaptics's annual profits have shrunk at a rate of nearly 9 per cent over the past five years.
The stock trades at 17 times forward earnings, compared with 23 times forward earnings for the Sipp 500 index. Investors who want to invest in growth stocks should consider Synaptics before the upcoming earnings report to boost the company's share price.