With a daily gain of 2.96%, a three-month gain of 5.33%, and an Earnings Per Share (EPS) of 1.81, Synaptics Inc (SYNA, Financial) presents an interesting case for value investors. The question is: Is the stock fairly valued? This article delves into the valuation analysis of Synaptics (SYNA) to provide insights on its intrinsic value. Read on to discover if this is a potential investment opportunity.
A Glimpse into Synaptics Inc
Synaptics Inc is a global leader in the development of semiconductor solutions for the mobile, PC, and Internet of Things markets. The company's innovative human interface solutions, which enable touch, display, fingerprint, video, audio, voice, AI, and connectivity functions, have revolutionized smartphones, PCs, and IoT products. With a significant revenue stream from China, Synaptics has a market capitalization of $3.50 billion and sales of $1.40 billion.
On October 03, 2023, Synaptics traded at $90.57 per share, slightly below its fair value (GF Value) of $97.94. This discrepancy between the stock price and its intrinsic value forms the basis of our analysis.
Understanding the GF Value of Synaptics
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value.
According to the GF Value, Synaptics (SYNA, Financial) appears to be fairly valued. This estimation is based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock price significantly deviates from the GF Value Line, it may suggest that the stock is either overvalued or undervalued, which could impact future returns. However, with its current price of $90.57 per share, Synaptics seems to be trading at its fair value.
As a result, the long-term return of Synaptics stock is likely to be close to the rate of its business growth.
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Assessing Synaptics' Financial Strength
Before investing in a company, it is crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Synaptics has a cash-to-debt ratio of 0.91, which is lower than 67.26% of 904 companies in the Semiconductors industry. With an overall financial strength rating of 6 out of 10, Synaptics exhibits fair financial health.
Evaluating Synaptics' Profitability and Growth
Consistent profitability over the long term reduces the investment risk in a company. Higher profit margins often indicate a better investment compared to a company with lower profit margins. Synaptics has been profitable for 8 out of the past 10 years. With a revenue of $1.40 billion and an EPS of $1.81 over the past twelve months, the company's operating margin is 11.39%, ranking better than 64.15% of 954 companies in the Semiconductors industry. Synaptics' overall profitability is ranked 6 out of 10, indicating fair profitability.
Growth is a critical factor in a company's valuation. Synaptics' 3-year average revenue growth rate is lower than 80.89% of 874 companies in the Semiconductors industry. Its 3-year average EBITDA growth rate is 5.1%, which ranks lower than 73.2% of 776 companies in the Semiconductors industry.
Comparing Synaptics' Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC)
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. Synaptics' ROIC of 5.47 for the past 12 months is lower than its WACC of 12.11, suggesting that the company is not creating value for shareholders.
Conclusion
In conclusion, Synaptics (SYNA, Financial) appears to be fairly valued based on its current performance and future prospects. The company's financial condition and profitability are fair, but its growth ranks lower than 73.2% of 776 companies in the Semiconductors industry. For more details about Synaptics stock, check out its 30-Year Financials here.
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