InvenSense (INVN) Still Attractive

Rally has to be digested a bit, but there is still room to rise..

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INVN over the next 72 hours. (More…)

On June 27 of last year, we wrote an article suggesting you buy two stocks, InvenSense (INVN) and ChipMos (IMOS). Do we think you should still buy them, and how did they fare? The first article will be about InvenSense.

InvenSense sells micro electro mechanical systems (MEMS) like gyroscopes and accelerometers, and related software. This is the stuff that enables your smartphones and tablets doing all kinds of funny stuff, like motion tracking. But this stuff also has other applications, like optical image stabilization, gaming and even mobile payments. InvenSense’s competitive advantage lies mostly in the gyroscope, the most complex of these small instruments.

InvenSense is the ‘easier’ of the two stocks for quite a few reasons:

  • It basically has only one major competitor, STMicroelectronics (STM).
  • It’s highly leveraged to the advance of smartphones and tablets.
  • It already produced Q4 2012 results, and these were, well, more than good.

As we’ve done on several occasions, you could almost simplify the InvenSense growth story as one of piggybacking on the growth of Samsung smartphones (and, to a lesser extent, tablets), especially the Galaxy S III smartphone, which has been a runaway success. Because of that, we’re really not surprised the results were as good as they were, they were always going to be good.

In fact, this was confirmed during CEO Abdi Q3CC when Tristan Gerra from Robert W Baird & Company asked whether the company’s expectation that the smartphone sector is going to skip the seasonal weak trend during the present (March) quarter (post holiday) is due to the ‘largest customer’ or whether it’s broad based. The answer (from CFO Alan Krock) is that it’s based on “our largest customer, which is Samsung.” [Read on here]