With a notable daily gain of 10.75% and a three-month gain of 7.83%, Synaptics Inc (SYNA, Financial) presents an interesting case for investors seeking value. The company's Earnings Per Share (EPS) stands at 1.81, prompting the question: is Synaptics fairly valued? This article delves into a valuation analysis to address this query, providing insights into the intrinsic value of Synaptics (SYNA) and its investment potential.
Company Overview
Synaptics Inc is a leading semiconductor solutions provider for various markets, including mobile, PC, and Internet of Things (IoT). The company specializes in human interface solutions, facilitating touch, display, fingerprint, video, audio, voice, AI, and connectivity functions across a range of electronic devices. With China as its primary revenue source, Synaptics operates under a singular segment focused on semiconductor product development and marketing. Currently, Synaptics trades at $98.01 per share, with a market cap of $3.80 billion, and is considered fairly valued when compared to the GF Value of $95.48. This comparison sets the stage for an in-depth evaluation of the company's intrinsic value.
Understanding the GF Value
The GF Value is a unique metric that assesses the intrinsic value of a stock. It is determined by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. The GF Value Line is a visual representation that suggests the fair trading value for a stock. If a stock's price significantly exceeds this line, it may be overvalued, indicating a potential decline in future returns. Conversely, if the stock price is well below the GF Value Line, it could signal higher future returns. At present, Synaptics (SYNA, Financial) is trading close to its GF Value, suggesting a fair valuation.
Because Synaptics is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
When considering an investment, the financial strength of a company is crucial. A strong financial position minimizes the risk of loss. Synaptics' cash-to-debt ratio of 0.91 places it in a less favorable position than 66.37% of its peers in the Semiconductors industry. However, with an overall financial strength rating of 6 out of 10, Synaptics maintains a fair financial condition.
Profitability and Growth
Investing in profitable companies generally poses less risk, especially those with a track record of consistent profitability. Synaptics has been profitable for eight out of the past ten years, with a solid operating margin of 11.39%, outperforming 65.16% of companies in the Semiconductors industry. With revenues of $1.40 billion and an Earnings Per Share (EPS) of $1.81 over the past year, the company's profitability is ranked as fair.
Growth is a vital factor in a company's valuation, as it is closely correlated with long-term stock performance. Synaptics' 3-year average annual revenue growth rate of -4.2% is lower than 81.21% of its industry counterparts, while its EBITDA growth rate of 5.1% also ranks below average. These figures suggest room for improvement in the company's growth strategy.
ROIC vs. WACC
An alternative method to gauge profitability is by comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Ideally, ROIC should exceed WACC to indicate efficient capital usage. For Synaptics, the ROIC over the past year stands at 5.47, whereas its WACC is higher at 11.71, suggesting that the company's investments are not generating sufficient returns relative to their costs.
Conclusion
Overall, Synaptics (SYNA, Financial) appears fairly valued given its current market position. The company's financial health is reasonable, and while its profitability stands firm, there is potential for growth enhancement. For a more detailed financial overview, investors can explore Synaptics' 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
