When Synaptics (SYNA) traded at $40 I though the shares were undervalued.
At $60 I think they’re close to full value. My target price on the stock is $64 and the shares closed at $58.51 today, up 2.94% on the day.
Tomorrow I’m going to take advantage of the current trend in favor off all things chip stocks to sell this position. I’m looking at a 32.29% loss since I added the stock to my Jubak Picks portfolio back on November 10, 2015.
Why not hold onto Synaptics now? After all the stock was up 62.59% for the last three months as of Friday, November 22.
Because Synaptics is still in the process of restructuring itself after the acquisitions of Conexant and the multimedia solutions business of Marvell Technology Group (MRVL). The goal is to expand the markets for Synaptics touch, display, and fingerprint solutions from its historical core of mobile device and PCs to audio and video products for markets that include the Internet of Things and smart cars. In addition Synaptics acquired Validity Sensors and Renesas SP to add new combined products–such as a touch and display integrated chip–that promise to protect the company from the intense competition in the mobile and PC markets that is pressuring margins for products addressing those markets.
I think these moves are smart and at $40 a share or even $50 a share I’d be willing to wait while Synaptics works to turn those promising moves into more revenue and more earnings.
But at near $60 a share, I’m not getting paid enough for the risk that those promises will take a while to hit the top and bottom lines and for the risk that exists in Synaptics’ current highly competitive markets and that is exacerbated by slowing demand for smartphones.
I’d be more than willing to revisit this stock at a lower price or when the company has made more progress on turning these moves into cash. Right now, though, I’m going to take that 3-month 63% gain and step back from the shares.