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After last quarters disappointing earnings report, this once high flying maker of motion sensing technology dropped 50% to $9. On the previous conference call, InvenSense (INVN) spoke of a bright future amid a hiccup in the supply chain that was limiting the ability of handset makers to utilize the motion sensing technology for 4G LTE phones. Hard to justify the major selloff when the problem was well known to be caused by a major supplier by the name of Qualcomm (QCOM).

Fast forward to Q113 earnings and InvenSense reported numbers slightly above estimates. The company also guided to sequential revenue growth of roughly 40% which should capture investor attention. Not to mention, the results continue to be impacted to the tune of $3-4M by the known issue with 28nm chips provided by Qualcomm.

The absolute performance remains strong, but the question remains whether the relative performance will be enough. The market has a funny way of only being concerned with the comparison to analyst estimates no matter the growth rate or valuation.

Q113 Earnings Highlights

  • First fiscal quarter 2013 net revenue was $39.2 million, up from $35.6 million for the first fiscal quarter of 2012.
  • Net income for the first fiscal quarter of 2013 was $7.7 million.
  • Diluted earnings per share for the first fiscal quarter of 2013 was $0.09, matching the average of analysts` expectations.
  • InvenSense ended the first fiscal quarter of 2013 with $157.5 million in cash and cash equivalents and investments, compared to $157.8 million at the end of the fourth fiscal quarter of 2012.

"While limited availability of other leading edge electronic components reduced the volume and availability of new customer products and impacted our revenue growth rates, we are encouraged by the continuing broad adoption of Motion Interface and in particular our MotionTracking devices by leading smartphone and tablet makers, including some mid-range devices, and we see a continuing demand and strong adoption of our MotionTracking devices by all leading customers in our space" said Steven Nasiri, CEO.

Guidance

The company guided to $53M to $57M for Q213. This quarter is seasonally a strong quarter hence part of the strong growth. Net income is expected to increase 90% sequentially with GAAP earnings per share of approximately $0.15.

"We are pleased with the number of new customer mobile products featuring InvenSense integrated 6-axis MotionTracking devices which launched during the quarter" said Steven Nasiri, CEO.

Market Potential

The company now gets 75% of revenue from smartphone and tablet makers. It obtained impressive wins in the new Google (GOOG) Nexus 7 and the Samsung (OTC:SSNLF) Galaxy S3 LTE provide verification that he companies products are becoming the go to product for motion sensing technology outside Apple (AAPL) products.

The company previously obtained over 30% of revenue from Nintendo and while that has dropped to 13% in this quarter the company sees gaming as an integral part of future growth. Not to mention the potential in Smart TVs and advanced digital cameras.

Valuation

The company has 40% revenue growth forecast for 2013 and again in 2014 yet it trades at a forward PE of only 11. While the Q113 report didn't provide material upside to previous guidance, it did confirm that the previous estimates of fast growth were very solid.

Another interesting point is that the company only provides GAAP numbers. Using comparative numbers to other tech companies, the non-GAAP or adjusted earnings would exclude the $1.7M of stock based compensation making the Q113 earnings actually $0.11. If one assumes as much as a $0.10 impact for FY14, the stock is only trading at 10x estimates.

Conclusion

This stock remains one of the cheapest technology stocks especially compared to growth estimates. The market remains too focused on relative performance as opposed to absolute performance. In essence, it doesn't appear to matter to the markets if numbers grow by 40% if they only match estimates.

As mentioned in the previous article here, the sell-off last quarter provided a potential buying opportunity yet it was hard to pull the trigger until the stock showed more support. This earnings report should finally provide support for the stock with the potential for upside heading into the Q213 report.

The expectations would be that the company could provide solid if not explosive guidance for the Q313 quarter (December 2012 quarter) that would be a major catalyst for the stock. Investors should look at picking a spot for entry into this cheap stock prior to the next quarterly report.

Source: Making Sense Of InvenSense Earnings