Low PEG Ratio Stock -- Synaptics
by J. Royden Ward, Chief Analyst, Benjamin Graham Value Investor
Originally from Cabot Wealth Advisory
February 17, 2015
Synaptics (SYNA: Current Price 78.91) develops and sells custom-designed human interface solutions for consumer electronics companies, such as Acer, Apple, Asus, Dell, Gateway, HP, HTC, Lenovo, LG, Logitech, Nokia, Samsung, Sony and Toshiba. Products include touchpads and touchscreens for notebook PCs, computer monitors, mobile phones, digital music players and remote controls. The company was founded in 1986 and is headquartered in San Jose, California.
In November 2013, Synaptics acquired Validity Sensors, a fingerprint sensor provider also based in San Jose. In June 2014, Synaptics purchased Renesas SP Drivers, a Japanese company specializing in the manufacture of microchips that control LCDs (liquid crystal displays). Both purchases will broaden Synaptics’ product lineup, and both companies are producing better than expected results.
Synaptics’ touchscreen and fingerprint technologies hold great promise. The company’s industry-leading touchscreen technology provides thinner, clearer displays. The technology helps Synaptics’ customers reduce time, cost and space during the manufacturing process.
Synaptics’ fingerprint technology is in the beginning stages of adoption, but already Apple and Samsung are including the technology in their leading iPhone and Galaxy models. Fingerprint technology is used to unlock smartphones and other electronic devices, and also allows device owners to make retail purchases using iPhone Apple Pay and Galaxy S5 PayPal.
Sales will likely rise 27% and EPS will advance 17% during the 12 months ending 12/31/15 compared to prior 12-month increases of 10% and 19% respectively. Sales and earnings could rise more rapidly if Synaptics’ touchscreen and fingerprint technologies are adopted faster than forecast. The recent proposal to lower tariffs on a multitude of technology products exported to China could provide an additional boost to Synaptics’ 2015 sales and earnings.
SYNA shares are very reasonably priced at 16.5 times current EPS. The PEG ratio is low at 0.97. The company does not pay a dividend, but its balance sheet is very strong with plenty of cash to fund management’s ambitious plans. Buy at the current price. Sell when Synaptics’ stock price reaches my Minimum Sell Price. Minimum Sell prices are provided for every stock I follow in every issue of Cabot Benjamin Graham Value Investor.