NVE Corp. (NVEC) is a semiconductor company whose products are based largely on the new science of spintronics. Spintronics uses electron spin direction (up or down) to indicate binary 0 or 1. The benefits of this new technology are that it can be faster, smaller, and use much less power than the older voltage based method of indicating binary 0 or 1. Naturally any new science has its disbelievers and its skeptics. It also has its technical challenges. This makes any new company based on this technology vulnerable to market sentiment. Spintronics as a U.S.-based technology company with substantial international sales (Europe) is also vulnerable to the economic problems of Europe and the USD - euro exchange rate. You should be aware of changes in market sentiment and macroecnomics. Then perhaps you can profit from them.
NVEC's two year chart indicates a technical break down through long term support (see below).
The chart shows that NVEC has broken down below its support level of approximately $52.5. There is some minor support at approximately $50. However, this is a weak support point that is two years old. A trader might expect some support at this point, but NVEC is most likely to follow its overall trend. This trend is a down trend. The 50-day SMA has moved downward through the 200-day SMA. With the break below the $52.5 support level, the stock seems to be headed lower to its next major support level at approximately $40. NVEC is oversold on its slow stochastic sub chart. It is at its lower Bollinger Band. These factors mean one might possibly see a near term bounce. However, the downtrend has been reconfirmed with the break below $52.5.
The fundamentals agree with the technical analysis. NVEC has missed EPS estimates for the last four quarters in a row. It has missed by an average of 31.30% in the last two quarters. Analysts have lowered its FY2012 EPS estimate from $276 three months ago to $2.28 today. Analysts have lowered NVEC's FY2013 EPS estimate from $3.20 to $2.78. They have lowered its current quarter EPS from $0.84 three months ago to $0.59. Currently earnings are forecast to shrink -17.40% in FY2012. Plus they shrank -10.28% over the trailing twelve months. These data are very negative for a technology growth stock with a PE of 20.04. When growth doesn't occur in a growth stock, investors become quickly dissatisfied with it. Plus some become skeptical that it will quickly return to its growing ways. When a stock only has a two star CAPS rating (a sell), you had better worry that it may not.
A couple of other fundamentals indicate that NVEC may be experiencing longer term problems. First, its cash conversion cycle on a 12-month basis indicates that the amount of cash it has tied up in inventory and accounts receivable is growing. It is currently 9.9 days worse than its 5 year average. The trend of revenue to inventory is also negative over the last few quarters. If the company has more cash tied up in inventory, etc. it is less able to grow. The fact that the inventory levels have been stagnant while the revenues have come down over the last few quarters tends to indicate that this is not due to an expected growth spurt, but more likely due to mismanagement. The consistent missing of EPS targets for the last four quarters substantiates this. Management can always surprise you. However, "the trend is your friend" when you are investing.
Given all of the above items, it makes sense to take profits in NVEC at this time. Aggressive traders may want to short it. The coming EU recession, a possible U.S. recession (or at least a slow down), and a significant slowing in China/Asia are good reasons to expect NVEC to have trouble over the coming quarters. The likely rise of the USD versus the euro as the EU economies weaken is another. A strong USD usually hurts U.S. exports, and NVEC is a significant exporter.
This article is not intended to forecast the long term future of NVEC. Spintronics seems a technological improvement over older technologies. The company may eventually rebound from this soft spot. Perhaps older companies are just reluctant to make changes to this new technology in a negative economic environment. This could be one of the factors hurting NVEC's business. This article is merely commenting on likely near term and medium term results and sentiment. Those make NVEC a sell. They should not preclude you from buying it back at a later date, especially if you can get it at a much lower price. Such a decision should be made at a later time though. Right now it's a sell for investors interested in keeping their money (and perhaps growing it).
The fundamental data for this article came from Yahoo Finance and TDameritrade.
Good Luck Trading.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in NVEC over the next 72 hours.