Why InvenSense Can Stage a Comeback

InvenSense (INVN) shares have lost momentum in 2015 as the stock is down more than 40%. This is despite the fact that InvenSense’s financial performance has been steady in the last few quarters, with the company reporting rapid growth. For example, in the first quarter, InvenSense had posted better-than-expected growth in both revenue and net profit.

Putting in a strong performance

The first quarter included a strong increase of 59% in revenue to $106.3 million from last year, which was the result of a strong demand for tablets and smartphones that use InvenSense’s chips.

The first quarter also saw InvenSense’s gross profit increase to $44.8 million as compared to $31.2 million for the same quarter last year.
But the gross margin for the quarter was 45%, which was down 460 basis points year-over-year due to an unfavorable product mix. Still, the gross margin of the company is comparable to industry’s average.

In addition, operating expenses also saw an increase of 32% to $31.9 million. Thus, we can see that the rate of increase in InvenSense’s expenses was lower than the growth in revenue, which is why the company’s cash flow performance improved.

As a result, InvenSense’s cash and short-term investments for the first quarter came in at $241.6 million, up from $146.4 million last year. In addition, InvenSense has an attractive valuation with a low forward P/E ratio of 12.26 and a PEG ratio of 0.73. Now, both these numbers indicate that the stock is undervalued relative to its growth, which is why investors should consider using the drop as an opportunity to buy shares. Additionally, InvenSense is bringing new products into the market that will help it gain more traction.

Product development will be a growth driver

InvenSense has brought the ICM-30630 chip to the market, which is the world’s first ever sensor system on a chip that integrates a tri-core sensor hub, a 6-axis MEMS sensor, software framework, and embedded flash and SRAM. The integration of so many features on a single chipset will help the end-users save space, power and deliver more efficiency, all at the same time.

Further, the company also plays a pivotal role as it provides a comprehensive solution set for today’s next generation connected TV remote, home systems, controllers and set-top box systems. This will allow the company to tap a huge addressable market going forward and sustain its strong growth momentum.


InvenSense posted a strong first quarter with top-line and bottom-line growth beating analysts’ estimates. The company posted robust revenue and net profit along with a rise in gross profit, net income, and earnings per share. Further, the PEG ratio of the company shows that the company will be paying less for its future growth earnings. Also, with growing demand for video gaming devices, smart television, navigation devices, and 3-D mice, the company’s end market will continue to improve

As a result, InvenSense’s financial price performance will continue to improve going forward, which will ultimately lead to a better stock price performance in the future. Thus, according to me, it will be a prudent decision to buy InvenSense shares for the long run due to the improvements that it is making to its business.
Published on Oct 2, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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