Synaptics Is A Good Proxy For Investing In Samsung

Apr 28 2014, 4:04pm CDT | by

Samsung and Apple (AAPL) are the top two players in the smartphone market.  I am often asked by  individual investors in the U. S. how to invest in Samsung, a Korean company.  The best way is to buy Samsung shares in Seoul, South Korea or GDRs in London.

In the United States, Samsung shares trade under the symbol SSNLF. These are unsponsored ADRs trading on the OTC market. They have very wide bid-ask spreads, and average volume over the last three months is 10 shares per day. On most days not a single share trades.  Given these huge liquidity issues, SSNLF should be avoided by all but the most experienced investors.

A good way to profit from Apple’s success has always been buying select suppliers to Apple.  However this strategy does not work well with Samsung.  Unlike Apple, Samsung itself is one of the largest manufacturers of semiconductors, display screens, and other components that go into smartphones. Until recently, Samsung was manufacturing the CPU, which is the brain of the smartphone, for Apple iPhones.

Synaptics, a San Jose, California-based supplier of human interface solutions mostly for touch applications, is a good way to profit from the success of Samsung smartphones.  Synaptics trades under the symbol SYNA on Nasdaq.  Average volume over the last three months is 1.38 million shares per day.  Bid and ask spread is not as narrow as desirable but it is typically manageable as it tends to fluctuate between $0.02 and $0.20.

Solutions from Synaptics are used to enable a number of features in Samsung’s flagship smartphone Galaxy S5.  These solutions include the finger print sensor in the home button that enables the PayPal payment app, stylus technology with sensitivity as high as one millimeter, and 3D touch capability that makes it possible to hover a finger over the touch screen to scroll and make selections.

Synaptics also played a major role in the popular Samsung Galaxy S4, and it is a supplier to the Samsung Galaxy TabPro 8.4.  Synaptics’ business is firing on all cylinders.  At the beginning of the fiscal year, Synaptics projected annual revenue growth of 21%.  Due to the strength of finger print ID business, now the company is projecting a growth rate closer to 40%.  March quarter revenues increased 25% year over year.  More importantly, revenue for mobile products increased 44% year over year.

Synaptics entered the June quarter with a backlog of $145 million and expects revenues for the quarter to be in the range of $275 to $295 million.  The company expects gross margins to be 45% to 46%.  Non-GAAP net earnings per diluted share for the June quarter are projected to be $1.10 to $1.32 per share. Analysts’ estimates for the next year earnings range from $3.54 to $5.23 compared to $3.47 to $4.08 for this year.  Assuming $5 of earnings, and revenue growth potential of 40%, the stock has considerable room to run.  If the stock attains a P/E of 20, the stock can go over $100.  As of this writing the stock is trading around $60

It is important to note that this stock is highly volatile. Two reasons behind the high volatility are that short interest periodically spikes and there is a high variance in earnings estimates.  Today the stock is down along with other growth stocks for no particular reason specific to this stock.  Astute investors can take advantage of the volatility by slowly scaling in on dips.

Samsung Unveils The Galaxy S5 And Gear 2

 
 
 

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