Is Synchronoss Stock a Buy, Sell, or Hold at 0.73X Price-Sales Ratio?
Synchronoss Technologies SNCR shares are one of the cheaper stocks in the broader Zacks Computer & Technology sector, with a Value Score of A.
SNCR stock is trading at a significant discount with a forward 12-month Price/Sales (P/S) ratio of 0.73X compared with the sector’s 6.2X.
It is cheaper than its Zacks Internet Software industry peer Aspen Technology AZPN, which is currently trading at a forward 12-month P/S of 12.31X.
SNCR’s cheap valuation is attractive for investors. However, is it worth buying at current prices?
Let’s dig deep to find out.
SNCR’s P/S Ratio (F12M)
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Synchronoss Rides on Expanding Clientele
Synchronoss shares have returned 96.8% in the year-to-date (YTD) period, outperforming the Zacks Computer & Technology sector and the Zacks Internet Software industry. The sector and the industry have returned 26.9% and 26.4% over the same time frame.
This white-label cloud software and services provider is benefiting from strong cloud subscriber growth. In the second quarter of 2024, the number of cloud subscribers grew 6.1%, which drove 5.9% of total revenues. Quarterly recurring revenues were 90.5% of revenues.
Its 75% of revenues are under contract for at least four years, which boosts top-line visibility. Strong demand for SNCR’s personal cloud, which supports smartphones, tablets, desktop computers and laptops, is expected to expand clientele that includes the likes of Verizon VZ and AT&T T. These two customers accounted for more than 10% of SNCR’s revenues in the first half of 2024.
SNCR Outperforms Sector YTD
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SNCR’s rich partner base has been a key catalyst. Synchronoss partnered with Verizon to provide the latter’s customers Unlimited Cloud Storage as part of its new myPlan and myHome Perks offerings.
The deployment of the personal cloud platform to power SoftBank's Angel data box service has expanded SNCR’s footprint in Japan. Synchronoss continues to invest in expanding its presence and customer relationships in the country.
Synchronoss Offers Strong View for 2024
SNCR offered strong guidance for 2024. It expects revenues between $170 million and $175 million, indicating 5.8% year-over-year growth. Recurring revenues are now expected between 85% and 90% of revenues.
Synchronoss expects an adjusted gross margin between 73% and 77% (up from previous guidance of 70% and 75%) and an adjusted EBIT margin surpassing 25%.
Adjusted EBITDA is now expected between $43 million and $46 million, up from the previous range of $42 million to $45 million.
Net free cash flow for 2024 is expected to be $10 million.
SNCR’s Earnings Estimate Reflects Mixed Prospects
The Zacks Consensus Estimate for third-quarter 2024 earnings is pegged at 25 per share unchanged over the past 60 days, suggesting a 44.4% year-over-year decrease.
Synchronoss Technologies, Inc. Price and Consensus
Synchronoss Technologies, Inc. price-consensus-chart | Synchronoss Technologies, Inc. Quote
For the fourth quarter of 2024, the Zacks Consensus Estimate for earnings is pegged at 27 cents per share, unchanged over the past 60 days, but indicates 131.76% year-over-year growth.
The consensus mark for 2024 earnings is pegged at $1.19 per share unchanged over the past 60 days, indicating an 184.4% year-over-year increase.
SNCR’s Long-term Prospects Are Bright
Synchronoss expects to achieve double-digit revenue growth over the next two to three years, with recurring revenues of at least 90% of total revenues.
Adjusted gross margin and adjusted EBITDA of at least 75% and 30%, respectively. SNCR expects continued free cash flow over the same timeframe.
A strong liquidity position with a cash balance of $23.65 million as of June 30, 2024, is noteworthy. SNCR generated a free cash flow of $7.6 million in the second quarter of 2024.
Synchronoss reduced its cost of capital in the second quarter of 2024 by repurchasing $60.8 million of outstanding preferred stock at a discounted price of $52.6 million and $19.7 million of Senior Notes at a discounted price of $16.5 million. It used new financing of $75 million for repurchase purposes.
The lower cost of capital results in annual pre-tax cost savings of more than $2 million. For 2024, the reduction translates to roughly $1 million of cash savings.
SNCR Shares: Buy, Hold or Sell?
Synchronoss’ expanding cloud subscriber base is a key catalyst. However, near-term growth prospects are not so rosy.
Synchronoss currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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