Synaptics (SYNA -1.81%) has crushed the stock market in 2021. Shares of the chipmaker have shot up more than 160% this year thanks to terrific demand for its chips that power Internet of Things (IoT) applications, as well as mobile and personal computer devices.

Chart showing rise in Synaptics' price in 2021.

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Synaptics' rally got another boost from its fiscal 2022 first-quarter results that were released on Nov. 4, which sent the stock up nearly 13% in a single day. Let's look at Synaptics' quarterly report and check why this high-flying tech stock may have more upside to offer.

Synaptics crushes estimates and surprises Wall Street

Synaptics' fiscal 2022 first-quarter revenue increased 13% year over year to $372.7 million, which exceeded the midpoint of the company's guidance range of $355 million to $385 million. The company's earnings rose to $2.68 per share during the quarter from $1.85 per share a year ago, an increase of 45%.

The sharp jump in earnings was driven by a huge improvement in the company's margin profile. Synaptics' adjusted gross margin rose 8.3 percentage points year over year to land at 58% in this quarter. The numbers were better than Wall Street's expectations of $2.59 per share in earnings and $371 million in revenue.

What's more, Synaptics' second-quarter guidance turned out to be the cherry on the cake. The company anticipates $405 million in revenue this quarter at the midpoint of its guidance range, along with adjusted earnings of $3.05 per share. Analysts were looking for $380 million in revenue from Synaptics this quarter.

Synaptics had delivered adjusted earnings of $2.30 per share in the prior-year period on $357.6 million in revenue, so the company is on track to record strong double-digit growth in revenue and earnings once again.

Analysts expect the momentum to continue for the full fiscal year, predicting a 32% increase in Synaptics' earnings on a 15% increase in revenue. For comparison, Synaptics' revenue had remained flat in fiscal 2021 that ended in June this year. So, Synaptics is expected to step on the gas this fiscal year, and that seems to have triggered a spate of price target upgrades.

Several Wall Street firms raised their Synaptics price target after the company's latest results. They appreciated the company's execution and the solid demand for IoT products, which isn't surprising given the way this segment is booming.

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The IoT business will be a big tailwind

The IoT segment produced 55% of Synaptics' revenue last quarter, recording 70% year-over-year growth to $206 million. The chipmaker expects IoT to account for 58% of its total revenue in the current quarter, with the segment's revenue expected to increase 44% year over year.

According to Synaptics, there are two reasons why the IoT business is growing at such a robust rate. First, the company is supplying its chips to leading players in the IoT space whose products are finding good traction in the market. What's more, Synaptics says that it is cross-selling multiple products to its customers, which is increasing its content, improving the product mix, and boosting the average selling price of its offerings. All of this is resulting in higher margins.

The second factor driving Synaptics' IoT growth is the adoption of its products by new customers. The company says that it "saw several new ramps in the quarter, which had meaningful impact on revenue."

The IoT business still has a lot of room for growth, as Synaptics is dealing in fast-growing applications in this niche. For instance, it is witnessing strong traction for Wi-Fi and Bluetooth combo devices and believes that the revenue from wireless IoT products could double in the next 18 months. The company has recorded design wins in other areas as well, such as docking stations and automotive connectivity.

Synaptics says that it has more than 25 design wins in the market for docking stations, a device that allows consumers to plug in their computer or smartphone to other peripherals. Demand for docking stations is expected to increase at an annual pace of nearly 30% through 2024, according to a third-party estimate, indicating that Synaptics is doing well in another fast-growing area.

Why now is a good time to buy

Synaptics' order backlog at the beginning of Q2 exceeds the higher end of its revenue guidance range thanks to the robust demand for its chips. However, the company pointed out on its latest earnings conference call that supply-related constraints are "limiting our ability to service our customers' full demand."

This indicates that Synaptics can deliver stronger growth if it can get the supply chain in order. More importantly, the IoT business can sustain its impressive growth over the long run, as the discussion above indicates.

That's why investors looking to buy top growth stock to take advantage of the IoT segment should consider buying Synaptics, as it is trading at just 24 times forward earnings, which makes it cheaper than the NASDAQ-100's forward earnings multiple of nearly 36 despite massive gains in 2021.