A Nanotech to (Re)consider
02/22/2013 7:45 am EST
After its IPO sent shares rocking and rolling, this company’s stock took a hard hit. But now, it may finally be the time to take a second look, says Paul McWilliams of Next Inning Technology Research.
It was nearly a year ago when InvenSense (INVN) was the hot stock in the headlines—being billed as the leader in the microelectromechanical systems (MEMS, the technology of very small devices) market. And investors who didn’t know any better were buying the stock hand-over-fist.
This pushed the price of INVN up from $8.30, where it opened at on the day of its IPO in November 2011, to close at $17.05 on February 21, 2012.
The next day, we published a report suggesting that INVN was far from the sector leader, and I thought INVN was overbought. But I also predicted that, given the hype, the price would move higher before falling. It did, but fell sharply three months later. INVN closed on February 8 at $14.38.
MEMS is most certainly not a new technology. It’s been around for decades. But like everything else in the semiconductor world, it continues to get better and cheaper, and as that happens, new applications are opened.
Given the fact INVN remains the only pure play in the MEMS market, let’s circle back to it to see if it makes sense to consider it while it is trading in the mid-$14s or lower.
INVN appears to focus mostly on consumer applications like the Wii gaming controller (which is clearly its crown jewel), smartphones, tablets, and the new emerging motion-sensing remote controls used for home entertainment.
The primary trend remains integration, which describes MEMS that include motion-sensing or motion-driving MEMS, plus classical semiconductor functions like data convertors, logic, analog circuitry, and/or microcontrollers.
INVN has leveraged this trend to at least some degree through a unique process that bonds the MEMS to a semiconductor device, providing a tightly coupled single-chip solution that can be manufactured in high volumes at a low cost. Going forward, we’ll see a wide variety of techniques used to reduce cost and deliver single-chip solutions that include all the semiconductor functions on one piece of silicon.
During the trailing 12 months, INVN boosted the value of its adjusted net current assets per share (including $33.3 million in long-term investments this year) to $2.54 per fully diluted share, from $1.92 per share. If we use the 75-cent fiscal 2014 (ends March 2014) consensus and a range of valuation multiples running from 16 to 18, plus the estimated balance sheet value of $2.54, it produces an estimated full-value price range running from $14.54 to $16.04.
I think until we see some resolution on the STM lawsuit or hear some bright company-specific news, INVN will trade more or less within that range. However, in a more optimistic market, or with the benefit of some company-specific good news, I think we could up the multiple range to 20 or slightly higher. That would push the full-value range into the high teens.
Bottom line: I continue to believe MEMS will be a high-growth market. Investors can easily gain exposure with less relative risk by owning any one of a number of stocks in companies that sell MEMS. However, none of them are MEMS pure plays.
INVN carries some indefinable litigation risk as well as the competitive risks noted above. However, given that it currently trades at the low end of what I view as a reasonable full-value range today, I think it merits consideration.