1 Reason Synaptics Will Continue to Grow

Synaptics' management is taking full advantage of the company's recent revenue growth.

May 20, 2014 at 10:30AM

Synaptics (NASDAQ:SYNA) is already beating Cypress Semiconductor (NASDAQ:CY) to the punch when it comes to high-end touch controllers for smartphones and tablets. The touch specialist continues gaining share with both companies' biggest customer, and may be able to capture more of the mid-range market as OEMs try to differentiate their products.

But, one trend indicates that Synaptics will continue gaining share in the touchscreen market, particularly in the mid-to-high-end.

Research & Development
Synaptics now generates more revenue than Cypress Semiconductors.

SYNA Revenue (Quarterly) Chart

SYNA Revenue (Quarterly) data by YCharts

With the decline in PC sales, Cypress has seen its revenue decline steadily over the last couple of years. Although sales in other areas are starting to offset the decline in its memory products and data communications divisions, the decrease in sales has taken its toll.

When sales decline, a company's ability to invest in its future declines as well. As a result, Synaptics surpassed Cypress' research and development budget this year.

SYNA Research and Development Expense (Quarterly) Chart

SYNA Research and Development Expense (Quarterly) data by YCharts

Although each company may vary on what it considers R&D expenses, the fact that Synaptics is increasing its budget while Cypress is forced to curtail its own doesn't bode well for Cypress' ability to compete with Synaptics in the future.

Cypress still spends a larger portion of its revenue on research and development compared to Synaptics, but it's certainly gotten there the hard way. Also, consider that Synaptics has increased its R&D expenditure nearly twice as quickly as it has grown revenue over the last five years. Comparatively, Cypress has decreased its R&D budget slightly faster than its decline in revenue.

SYNA Research and Development Expense (TTM) Chart

SYNA Research and Development Expense (TTM) data by YCharts

Focus
Keep in mind that Cypress has a broader product portfolio compared to Synaptics. That means that its research and development department likely isn't as effective as Synaptics.

Cypress has four main divisions: memory products (SRAM and legacy clocks), data communication (USB and Bluetooth low-energy), programmable systems (touch), and emerging technologies (a catch-all for new developments). The amount of overlap between these divisions ranges, but it's relatively small compared to Synaptics' operations.

Synaptics is more focused on touch technology. The company makes touchscreen solutions, touchpads for laptops, it integrates its capacitive touch controllers into ThinTouch keyboards, and recently acquired Validity Sensors for fingerprint scanning technology.

How do prices compare?
You would think that with the excellent potential for growth at Synaptics, its stock price would be well above Cypress'. Remarkably, they're priced very similarly across the valuation metric board.

 

Cypress Semiconductor

Synaptics

Price/Earnings (2015 est)

14.39

12.99

Price/Sales (2015 est)

1.92

1.90

Price/FCF (ttm)

28.99

29.11

Source: Yahoo! Finance

Now, it would make sense for both companies to garner similar valuations if they had similar outlooks for growth, but where Cypress now pays out a good portion of its revenue as a dividend, Synaptics is investing in more R&D and acquisitions.

As a result, analysts expect Synaptics to grow earnings over 20% annually during the next five years. Revenue ought to grow even faster. Comparatively, analysts expect Cypress to grow earnings at a rate of just 10% over the next five years, with growth coming from a combination of improved operating efficiency and increased revenue.

Already paying off
Synaptics' growing R&D budget is already starting to pay off. As long as the company continues to operate under the same general method of reinvesting revenue into more R&D, it should be able to continue expanding its share of the touchscreen market. Additionally, smart acquisitions like Validity Sensors will give the company additional avenues for growth.

It's no wonder analysts see so much upside in Synaptics' stock price.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Cypress Semiconductor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers