Synaptics (SYNA 2.71%) was a top performer on the stock market in 2021, with share prices of the chipmaker tripling during the year thanks to outstanding growth in its Internet of Things (IoT) business. But 2022 has been a forgettable year for investors so far with the stock price down 20% so far this year.

But this price drop may present a golden opportunity for investors looking to buy a high-growth company at a relatively cheap valuation, especially considering that Synaptics recently delivered outstanding earnings that seem to have boosted investor confidence.

Let's look at the reasons why Synaptics stock has started regaining its mojo.

SYNA Chart

SYNA data by YCharts.

Synaptics blazed past expectations in Q2

Synaptics released its fiscal 2022 second-quarter results on Feb. 3. Investors reacted positively to the company's results -- the stock gained 3% following the release, and it has been heading higher since. This wasn't surprising, as Synaptics' revenue jumped 18% year over year to $421 million and adjusted earnings shot up 42% to $3.26 per share.

The numbers easily cleared Wall Street's expectations of $3.10 per share in adjusted earnings on $405 million in revenue. Synaptics' better-than-expected performance was driven by the terrific growth in the IoT business, which recorded 60% year-over-year growth.

Man in specs looking at a line chart on a laptop.

Image source: Getty Images.

Synaptics enjoyed multiple catalysts last quarter. For instance, the automotive segment achieved a $100 million annual revenue run rate two quarters ahead of the company's expectations. It also recorded new design wins across several segments such as drones, wearables, surveillance cameras, and smart displays, among others. Meanwhile, the company is also gaining traction in the virtual reality (VR) headset market, which could unlock a huge long-term opportunity for Synaptics given the potential growth of the metaverse.

The above-mentioned tailwinds tell us why Synaptics' guidance crushed expectations. The company expects $465 million in revenue and $3.55 per share in adjusted earnings this quarter at the midpoint of its guidance range. That would translate into a massive increase over the year-ago period's earnings of $2.03 per share on revenue of $326 million. More specifically, Synaptics' earnings could jump 75% year over year, and revenue is on track to increase 43%.

Analysts were looking for only $383 million in revenue from Synaptics, indicating that they underestimated the impressive growth drivers it was sitting on. More importantly, the company's guidance indicates that its pace of growth is picking up, and Synaptics seems capable of maintaining that trend.

The chipmaker is built for impressive growth

The IoT business is Synaptics' biggest source of revenue, accounting for 62% of its top line last quarter. It is worth noting that IoT's contribution to Synaptics' top line has increased substantially over the past year, as the segment accounted for 45% of the revenue in the second quarter of fiscal 2021. So the growing influence of the IoT business has been a key growth driver for Synaptics over the past year or so, and the trend is likely to continue in the future.

That's because there are several growth hotspots for Synaptics in the IoT business. For instance, the company sees the growing adoption of the WiFi 6 wireless standard as a key pillar of its IoT growth, as it plays a critical role in allowing multiple devices to connect with low power consumption. As a result, Synaptics customers have chosen its WiFi 6 chips for deployment across various "product categories including surveillance cameras, drones, smart displays, gaming, wearables, smart speakers, and other consumer-centric devices."

The company believes that it could double its wireless revenue going forward, which wouldn't be surprising as the market for WiFi 6 devices is expected to clock a compound annual growth rate of 74% through 2028, according to a third-party estimate.

The automotive market is another growth hotspot for Synaptics that could give it a big boost in the long run. The chipmaker's automotive chips have been selected for use in more than 50 car models spread across more than 20 original equipment manufacturers (OEMs). Six of these OEMs, based in Europe and Asia, are already ramping up the production of vehicles using Synaptics chips. So the automotive business has a lot of room for growth as more OEMs bring vehicle models powered by Synaptics' chips into production.

All of this tells us why analysts expect Synaptics' revenue to grow at a nice pace over the coming years, while clocking annual earnings growth of 15% over the next five years.

SYNA Revenue Estimates for Current Fiscal Year Chart

SYNA Revenue Estimates for Current Fiscal Year data by YCharts.

Investors are getting a good deal right now

Though Synaptics stock is trading at a rich 67 times trailing earnings right now, it is substantially cheaper than its 2021 earnings multiple of 92 thanks to the substantial pullback so far this year. However, a forward earnings multiple of just 18 points toward solid bottom-line growth at Synaptics.

Moreover, this semiconductor stock is trading at 6.5 times sales, compared to last year's average of 8.3. Given that Synaptics' growth is all set to accelerate, it looks like an ideal bet for investors looking to buy a fast-growing company at a relatively cheap valuation. And if it drops further on account of the broader sell-off in tech stocks, then investors could get a better deal on Synaptics that they may not want to miss.