Updates On InvenSense's News And Earnings

| About: InvenSense (INVN)
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InvenSense (NYSE:INVN) has just released Q4 earnings, beating on both EPS and revenue. The stock rose about 10% after hours to 10.25. In my previous article, I wrote about how this is potentially a good buy and hold growth stock. I also outlined three main risk factors. In this article, I will give an updated assessment of those based on news, research and clues from the earnings call, along with a quantitative valuation for the stock.

Updates on Risk Factors

The first concern was the departure of the founder and CEO at the end of last year. Events like this sometimes presage a revelation of some problems. I'd said that there didn't seem to be any indication of problems in this case, and that it may even be a positive, as many CEOs have difficulty transitioning from startup mode to running a successful complex company with many opportunities and resources to manage. Nonetheless, it was comforting to get another good earnings report under our belts. The January call was fairly close to the departure, but if that event had been connected to some problem in the works, it almost certainly would have come out by now.

The second risk factor was litigation from competitors, namely STMicroelectronics (NYSE:STM). InvenSense provided an update on this last week. They went on to reiterate in today's call that all of the STMicro patents that have received a ruling so far have been invalidated. In short, everything is going InvenSense's way in this arena.

The third concern was ex/inclusion of InvenSense's technology in the recently released Galaxy S IV. I commented at the time that I don't see any specific product as much of a factor for the long haul, but I did some checking just the same. I tapped a source who has worked in the smartphone component supply trade. He said, "This particular Atmel UC128L5-U chip seems to be customized for Samsung. Customizing chips is a standard procedure in the high volume electronic industry." That means we're not going to find out what's in it. In any case, components vary from phone to phone and more recent tear-downs have confirmed this. Most importantly, InvenSense confirmed in their earnings call that the relationship with Samsung is better than ever.

Looking Forward

They also gave some hints about signing Apple (NASDAQ:AAPL) up as a new customer, although they cannot name them specifically. There were numerous comments about securing prodigious production capacity. They also characterized conversation with the other (than Samsung) major smartphone manufacturer as becoming more constructive, while emphasizing that they will move to their own tune, as always.

Finally, there was the introduction of new products, first thing this morning. InvenSense introduced the world's lowest profile 6-axis motion tracking device and smallest dual-axis gyroscopes or optical image stabilization in smartphones. The latter represents a relatively new, high-growth line of business for the company, as smartphones become increasingly capable of recording live video. The company said that these and other recent products should lead to increased margin in coming quarters.

Guidance for next quarter was in line with analyst estimates, though the company called this "conservative". Even after the 10% after hours gain, INVN would have a PE under 14 on analyst average estimated earnings $0.74 per share this year. Assigning a more reasonable growth PE of 20 results in a fair value of around $15 for almost 50% gain. A 15% short ratio as of April 15 makes the situation all the more compelling, and adding Apple as a customer would represent very significant upside above even these figures. In my opinion, INVN remains a long-term buy and hold candidate, with very acceptable risk. The stock seems currently undervalued and correction has just begun.

Disclosure: I am long INVN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.