Synaptics Has Magic Touch: Under the Radar

As a producer of touch-screen technology, Synaptics is positioned to benefit from the exploding the smartphone market..

Author:: David MacDougall
Publish date:: Mar 30, 2010 6:25 AM EDT

SANTA CLARA, Calif. (TheStreet) -- It's becoming harder to find a phone without a touch screen.

Devices by

Apple

(AAPL) - Get Report

Motorola

( MOT),

Research In Motion

( RIMM) and

HTC

have made touch screens the standard.

According to recent research by

Canalys

, a market analysis firm, 55% of the smart phone shipped in the fourth quarter had touch screens, the first time the majority of phones shipped have had touch screens. Sales of devices with touch screens doubled in 2009 to 75.8 million units compared to the previous year. The market shift to touch screen devices is impossible to deny and investors should take note.

Consider Santa Clara, Calif.-based

Synaptics

(SYNA) - Get Report

. As a producer of touch-screen technology, it's positioned to benefit from this trend. The company creates touch sensors and software that allow users to control devices with innovative gestures.

We featured Synaptics as an Under the Radar pick on Jan. 28. Since then the stock has gained 1.1%, while the

S&P 500 Technology Index

has climbed 5.4%. Still, the fundamentals remain strong and valuations make the stock as attractive as ever.

With a forward price-to-earnings ratio of 12.8 and a PEG ratio of 0.7, the stock is cheaper than those of other companies. Synaptics' revenue has declined slightly in the recent quarters, but the company still beat estimates in each of the last four quarters.

A return on equity of 32.4% is particularly attractive given that the company uses almost no leverage in its operations. The only use of debt financing comes in the form of a small sliver of long-term debt, which is covered 70 times over by the company's cash balance. With $140 million in cash, liquidity is not a concern.

Chipmakers like

Qualcomm

(QCOM) - Get Report

have been bid up as investors dig deeper into the smartphone explosion, so expect suppliers like Synaptics to also shine in the glow of this hot market.

TheStreet rates Synaptics "buy."

-- Reported by David MacDougall in Boston.

Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.