A Cheap Play On The Success Of Microsoft's Surface

| About: Synaptics Incorporated (SYNA)

Microsoft's (NASDAQ:MSFT) Surface is getting generally good reviews including influential Walt Mossberg. Microsoft also has solid momentum overall which I wrote about last week. The new tablet is aimed at the consumer market but I think the Surface is going to play very well within the enterprise market. Corporate IT managers will want a trusted name that they already use throughout their companies, they already have Microsoft Office everywhere and the functionality of the device should more than meet the needs of office workers.

One company that may benefit greatly if the Surface and other tablet devices powered by Windows 8 catches on is Synaptics. The company provides the ForcePad solution that will be used for the Windows 8 and Windows RT Surface and also will be used by the Samsung Galaxy Tab 2 which will be powered by Android.

Synaptics Incorporated (NASDAQ:SYNA) develops and supplies custom-designed human interface solutions that enable people to interact with various mobile computing, communications, entertainment, and other electronic devices.

7 reasons SYNA is a good value play at $23 a share:

  1. The stock is much cheaper than it looks at first glance. The company has over $300mm in net cash on its balance sheet (40% of its current market capitalization).
  2. The stock is selling at the very bottom of its five year valuation range based on P/S, P/B and P/CF.
  3. The company has grown revenues at better than a 17% annual clip on average over the past five years and the stock sells for a reasonable five year projected PEG (1.09).
  4. The seven analysts that cover the company have a $29.50 a share price target on SYNA.
  5. The company consistently buys back its own shares. In FY2011 it bought back 7% of its outstanding float. Given its huge cash balance and that is sells for under 5 times operating cash flow after backing out cash, I would look for these repurchases to continue.
  6. Synaptics has beat earnings 11 out of the last 12 quarters and sells for under 12 times forward earnings (under 8 taking out net cash), a discount to its five year average (13.8).
  7. The stock has good long term technical support at these levels (See Chart).

Disclosure: I am long MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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