Link to the Real. It Pays.
The images on the screen haven’t always moved when touched. Poking and swiping at our phones or most everything else is yet another example of what we all live with now; technological innovation. Thank Synaptics in part for that one. San Jose-based Synaptics is involved in the “development, marketing, and sale, of intuitive human interface solutions for electronic devices and products.” San Jose? Absolutely everyone’s in San Joes, or Santa Clara. If anything were to happen to those tech meccas we’d be screwed.
Why Synaptics? SYNA’s in the sweet spot. They’re yet another vital secular growth tech story, one of those wonderful miracles in no need of a roaring economic backdrop in order to thrive, amen. SYNA, up 37.4% over six months, and 7.85% over the past five days. Perhaps the miracle here is that a secular tech play sports a forward P/E of 11.4, or 12.6 depending on who you’re looking at. And, critically, shares are running, yet haven’t run so far as to feel like a chase. Thinn obvious chasing. Zoom(ZM.)
Synaptics isn’t an IPO or charmed darling. It’s a turnaround story, with a new CEO, Michael Hurlston, brought in to focus, reorder, and empower, a good company leaning backward rather than forward. It’s a company with sales in reverse, -9%1Y, and EPS in hyper-drive, up 589.9%1Y. Like we said, a good company–3Y EPS growth 35.5%, now in reboot. “Debt” you ask? Average, Long term debt/capital .42, against an S&P of .44.
That filthy virus we’re locked in an ugly cage-match with chopped this company’s share price down like some merciless logging crew. Since the mid-March massacre SYNA has climbed, dropped and chopped on earnings, and climbed some more. Now it’s decision time. The chart tells that story.
Just like everyone else SYNA faces questions. Can cap-ex spending support further expansion for the company? Will spending be sustainable with the clamps on? As companies of all sizes search for clues concerning the economic environment, all are cutting the fat and pushing for efficiency, and increased productivity. Therein lies tech’s help. Tech fuels increased productivity now. As earnings season again kicks off, we will be hearing much about cost-cutting. Think labor first, not tech. Think airlines, Disney, Chevron. Synaptics has it infinitely better than all those. Why? Tech is king and tech margins are higher then the afore mentioned. Have another look at the technical crystal ball.
Many stocks face election risk, including tech. But that’s more mega-tech, not Synaptics. From our perspective, whether investing or trading, being on the sideline during times of true uncertainty is better than being sucked down a drain no one saw. The secular tech growth trend will absolutely continue. Yet, true safety belongs only to the big. That’s not SYNA. The company lives far down the market cap ladder at $2.8B., trades thin at only 34.2 million shares outstanding, all owned institutionally. Further, it’s in reboot mode.
Having said all that, bargains don’t simply show up in your driveway with a giant X-Mas bow. Bargains live amid darkness, uncertainty, and dirt. Think Exxon and a major red flag 10% dividend. Is XOM a bargain? Only the few know and we’re not among them. And Synaptics? Ned Davis Research loves them, affixing a 98.1 composite rating, and they hate everybody. Barron’s also called SYNA out for a closer look a couple weeks ago. As usual, Barron’s didn’t really take a stand, rather offered a drive-by. We’ll go on record saying we like SYNA. But not as a BUY yet.
Fact. Synaptics is a dominant player in touch and display technology, counting both Apple and Samsung among their customers. Heady stuff. SYNA has also recently acquired valuable assets from other players like Broadcom and Marvell. As Morningstar suggests Synaptics has thus “significantly diversified their product portfolio, and opened itself up to new high growth areas.” Their “Fair Value Estimate” is $70.00. SYNA’s trading today at 84.58, up 3.79%.
Is Synaptics a BUY? We’re waiting on buying SYNA as either a trade or a hold. In our opinion, it’s make-or-break time here. We want to see shares close twice above it’s 21d and 50d simple moving averages, and it’s pre-COVID high, a medium-term resistance level. Just today it’s impressively punching through resistance at both $82.30 and $83.11, and strongly challenging R3(chart below.) We’re staying tuned.