SOMETHING FUNNY HAPPENED ON HUMP DAY
Since our ejection from StockTwits last June, it’s rare that we see stream posts from Venture Capitalist & StockTwits co-founder of Howard Lindzon. Howard’s got some great insight on MACRO trends he’s seeing in the VC world – as it’s his core competency & his insight is both deep + valuable – which he rarely shares. Thanks to a finely groomed stream filled only with folks who posts high value -actionable blogs or trading ideas with a thesis & plan inclusive of an entry, stop & targets few of his posts make it to our feed.
Yesterday, however, we had CNBC on while Howard was talking stocks. From San Diego, a “hot bed” for biotech companies (and stock + brokerage scandals), biotech was a big topic throughout the interview. Howard admitted he’s not a trader of biotech stocks (nor are we) but one interesting & notable “theme” he mentioned – quality insights that played right to his core competency of “tech’s future” – was his view that $NKE & $UA are “pseudo biotech plays” due their weaving of technology into apparel that measures & records all sorts of medical & performance related information.
Howard’s view was a smart one (not just because we agree with it, which we do), supported by data which reveals explosive growth & advance in the very segment of the market he spoke to …. and that brings us to $INVN.
TAKE THE CALL WHEN YOUR STOCK IS DOWN
- A MEASURABLE PLAYER: The mood was somber across the $SMH landscape today, much due poor PC data from $HPQ (INVN itself was down a cool 3%) but it’s always important to know – unless you’re a chartist – what the Company you own actually does & how it “fits in” to a sector. In the case of $INVN, it’s focus isn’t in the PC space. InvenSense makes motion & tracking interface solutions in consumer electronics based on its multi-axis gyroscope technology by targeting applications in video gaming devices, smartphones, tablet devices, digital still and video cameras, smart TVs, 3D mice, wearable health and fitness monitors, optical image stabilization products, and portable navigation devices. While not a player in PC’s (good) but a name that participates in high growth areas – despite MACRO economic contraction – like SmartPhones, SmartTV’s, smart appliances, smart apparel, etc. (very good), Howard’s inadvertant “blessing” of the very pond that INVN plays in motivated us to share a more robust take on whether or not INVN looks “smart” on FA & TA.
- THE DAILY: Trading just 9% above it’s 52 week low while having cascaded nearly 47% off 52 week highs, the name looks like a dog with fleas to the common crayon. While a SCALP trader type of TA pro may make a case that @ 9.15 may serve as a “triple bottom,” thus defining a fairly low risk STOP, there’s not a whole lot to get excited about if all one does is scan charts.
- THE WEEKLY: Since coming public in late 2011, this chart shows INVN’s been a lackluster performer. In the camp of “anything you can do, I can do better;” the weekly chart bests it’s daily chart brother & offers up the unicorn-esque “quintuple bottom.” We’re not sure what the probability & statistic records are on “quintuple bottoms holding” so we’ll have to peak in on the FA to get a better handle on the name.
FUNDAMENTALS MAKE YOU CASH – Dash For This “Trash”
- WHAT’S TO LIKE: There’s a lot of smart people on the stream that talk about corporate fundamentals & everyone seems to have their own favorite metrics. In a broad market that, for three years, hasn’t traded with any correlate to fundamentals, individual stock selection still has no greater contributor to a trade’s success or failure than FA (unless you’re L: as seemingly any long “works” at some point, you know, “set it & forget it” like Eddy Elfenbein suggests with his model portfolio).
INVN has some “snap shot” components that made us do a deeper due diligence (DD) dive into SEC filigns; Debt: $0, Cash per Share: $1.89, a Price to Earnings Growth Ratio (PEG): 0.92, a Price to Free Cash Flow (P/FCF): 23x, Gross Margins: 54%, Net Margins: 23% and most importantly, a Forward Price to Earnings Ratio (fPE): 13.5x versus Forward Earnings Per Share Growth Estimates (fEPSe): +29%.
||EPS next Y
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||9.06 – 18.46
||EPS past 5Y
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FORWARD PE vs. FORWARD GROWTH – With A Side of Check The History: Coming up in the business as fans of Jim O’Shaughnessy, Scott Black, Michael Price & Peter Lynch, men who made their billions identifying & buying value, we like when we can buy growth companies trading at a discount to their peers & their own above average growth. The last metric noted, INVN’s fPE vs. fEPSe is especially appealing to us; the Company trades with a fPE of just 13.5x and their expectations for FY14 fEPSe growth of +29% (multiple reflects a 50% DISCOUNT to current & forward growth). Further, consider that INVN sees FY13 EPS of $0.58, following FY12′s posted $0.37 per share, +56.7% growth, our interest was peaked. Next, we took a “snap shot” peak at how a Company has performed historically & pair it to what they forecast looking forward. That looked great. Finally, we dug through the SEC filings, which we advise you do as well, and noted that in FY12 the INVN – Samsung relationship accounted for just 2% of INVN’s FY12 REV (we’d guess the most recent Q FY14 guidance raise stems from increased visibility & expanded business with Samsung).
- Here’s what a good EPS history, EPS trend & Growth History looks like:
|7 Days Ago
|30 Days Ago
|60 Days Ago
|90 Days Ago
LOOK BOTH WAYS – No Stock or Trade is Without Risk
One of the things most on the stream are horrible at is “looking both ways” when sharing their FA, TA, ideas & trades. Trust this; if you like a stock long, there’s likely a bright person who could make short case and, likewise, God forbid you like or trade a stock from the short side, you’ll most certainly hear from a bull. Additionally, STOPS nowadays are rarely, if ever, mentioned in posts. Finally, insightful Q&A by and between two trading professionals who have opposing views – a proper exchange which is void of cursing & backed + supported by facts & data – is even more rare. Today’s stream trader, rather than engage & treat the stream to what could be an insightful and revealing exchange, reaches immediately for the “BLOCK” button while muttering “that guy’s a fucking idiot.”
Foolish, all of it, but we’re not in that camp. We’ve begun a L: INVN and we acknowledge it has some issues;
- The charts are horrible AND the name has cascaded from $15 to below $10 AFTER it posted a “beat REV, beat EPS, raise forward Q REV, raise forward FY14 EPS.” That’s alarming.
- INVN has an open & ongoing patent lawsuit with STM. They call the claims “frivolous” & INVN recently “won” a motion but let’s keep it real; lawsuits are risks.
- Since February, the stock has faced consistent & steady liquidation, again, despite a very strong historical performance & forward looking views relative to FA.
- The stock has very little Institutional coverage or sponsorship & there’s – perhaps – only one person on the stream who knows INVN’s largest shareholder (Partech US Partners). The biggest “name” holder, FMR, LLC., holds (for them) a throw away position of just 5.5% in INVN’s outstanding shares.
SUMMARY & DISCLAIMER
We very much enjoyed Howard’s commentary on the “transformation” of some mainstream apparel names into potentially “pseudo biotechs” & view $INVN as a “pick & shovel” play across multiple sectors, not just apparel. Whether it be closing our curtains from the Nexus 10, our maid having the capacity to start laundry from her SmartPhone or being able to monitor biomechanics from our sports watch during & following a work out, the future for “device development & integration” to make life more efficient & robust should be amazing with $INVN an embedded beneficiary in that expansion.
We’re aware of the risks & are building a SWING L: INVN position, which is currently sized @ 1.75% AUM with a basis of $10.10. We’ve yet to note a STOP because this is a name we’re looking to build up to 12% AUM. Our view that the stock offers exceptional growth at a discounted value is key. The expansion of the Samsung relationship is a potential catalyst. New business opportunities abound & should the $STM lawsuit be resolved, one notable risk removed. We have open orders representing a .5% AUM add & we’d be looking to put on another 1.75% to 2.25% AUM should the name trade below $9.60. Scales would likely be taken between $9.10 – $9.50 but we’ll post specifics, as we always do, live to our Twitter feed. Our opinion is that INVN offers an excellent entry into a name with a strong FA history, amazing FA growth prospects & patents + technology that position it well within one of the most exciting & high growth sectors in the market today.