Synaptics (SYNA 2.91%) stock has been on fire on the market over the past six months thanks to solid growth across the Internet of Things (IoT), personal computer (PC), and mobile businesses, and the company's latest quarterly report indicates that its rally could get stronger.

The chipmaker's third-quarter earnings arrived at the higher end of its guidance range and surpassed Wall Street's expectations thanks to a sharp jump in margins. Synaptics also delivered solid guidance for the current quarter. Let's look at the factors driving Synaptics' impressive growth and find out why the stock could jump higher after a strong performance so far in 2021.

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The IoT business is on fire

The IoT business produced 45% of Synaptics' total revenue last quarter, which was more than double compared to the year-ago period's revenue share of 22%. IoT revenue shot up 101% year over year thanks to a couple of acquisitions, as well as new business scored by the company in this segment.

For instance, sales of Synaptics' wireless connectivity solutions across verticals such as smartwatches, home automation, and streaming devices have increased substantially as the design wins scored by the company have moved to the production phase. It is worth noting that Synaptics' quarterly revenue run rate from these products will double in the current quarter as compared to July last year when the chipmaker had acquired the IoT assets of Broadcom.

Synaptics pointed out last year that the Broadcom IoT acquisition would add $65 million in annual sales to its business. Management admitted on the latest earnings conference call that the acquisition has "significantly" exceeded their expectations, a trend that's likely to continue thanks to new product introductions.

Different elements of the Internet of Things represented in a hive.

Image source: Getty Images.

Meanwhile, the automotive business can also step on the gas. Synaptics says that its touch and display driver integration (TDDI) chips will be deployed by several automakers and original equipment manufacturers (OEMs) in the U.S., China, and Europe. TechNavio estimates that the automotive touchscreen control market could clock a compound annual growth rate of nearly 7% through 2025, so don't be surprised to see Synaptics enjoy consistently strong growth in this segment over the long run.

In all, Synaptics seems confident of clocking high double-digit percentage growth rates in the IoT business thanks to a combination of improving end-market demand and the company's ability to win market share. According to CEO Michael Hurlston:

With our strong backlog and design win momentum, we are increasingly confident that we can outpace the 10% to 15% industry growth rate.

Not surprisingly, Synaptics' guidance suggests that the IoT business will now be playing the most important role in the company's future growth. The company expects IoT to supply 49% of its total revenue this quarter, which would again be nearly double as compared to the year-ago period. Let's see why that's a good thing.

Synaptics is switching into a higher gear

The growing influence of the IoT business reflects in Synaptics' impressive fourth-quarter guidance. The company anticipates $325 million in revenue at the mid-point of its guidance range for the April-June quarter, translating into year-over-year gains of nearly 18% and comfortably ahead of Wall Street expectations. The year-over-year growth could have been stronger, but the company had its mobile LCD (liquid crystal display) TDDI business in April last year, as that was weighing on its margins and sales.

The non-GAAP gross margin is expected to jump from 46.9% last year to 56.5% this quarter, indicating that Synaptics' shift to a higher-margin business model continues to bear fruit. As a result, the company's adjusted earnings are expected to land between $1.85 and $2.15 per share this quarter, a big jump over the year-ago period's figure of $1.24 per share and significantly ahead of the $1.66 per share consensus estimate.

It won't be surprising to see Synaptics' revenue, margins, and earnings land closer to the higher end of its guidance, as the company is finding ways to increase its average selling prices. A similar story unfolded last quarter as Synaptics' earnings of $2.03 per share were at the higher end of its guidance range of $1.75 to $2.05 per share.

Revenue of $325.8 million also exceeded the midpoint of the guidance range by a whisker but fell year over year thanks to the divestiture of the LCD business.

Synaptics is now on track to deliver growth on all fronts -- revenue, earnings, and margins -- and it looks all set to crush the market's expectations as the latest guidance numbers indicate. What's more, it isn't too late for investors to jump on the Synaptics gravy train. This growth stock trades at just 14 times forward earnings, making it an ideal pick for investors looking to add an IoT stock to their portfolios.