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Synaptics Incorporated (NASDAQ:SYNA) shareholders should be happy to see the share price up 13% in the last month. But only the myopic could ignore the astounding decline over three years. The share price has sunk like a leaky ship, down 72% in that time. So it's about time shareholders saw some gains. Of course the real question is whether the business can sustain a turnaround.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
See our latest analysis for Synaptics
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Synaptics moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.
We think that the revenue decline over three years, at a rate of 18% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Synaptics has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Synaptics stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
Synaptics shareholders are down 21% for the year, but the market itself is up 34%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for Synaptics (1 is a bit unpleasant) that you should be aware of.