Up 11% and Invensense Still Has Some Gas in the Tank
Anthony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Invensense (NYSE: INVN) shot up over 11% recently on almost 4 times its average volume on the news that 4Q12 earnings came in at $.19 per share, beating analyst estimates of $.17 by 11.8%. This is great news for current shareholders, but it could easily be even better in the very near future.
Invensense is a promising company that makes gyroscopes for motion tracking in devices and consumer goods. You are probably already familiar with these types of chips in smartphones and tablets, but there are many other markets that they are looking to establish as well. Currently Invensense supplies chips to a number of big name devices including Google's (NASDAQ: GOOG) Nexus, Amazon's (NASDAQ: AMZN) Kindle and Samsung's Galaxy series. There is even talk of Apple (NASDAQ: AAPL) ditching their only other real competitor in the MEMS gyroscope space, STMicroelectronics (NYSE: STM), as a supplier for their tablets and smartphones. Obviously that would be a huge win for Invensense. The company also has some solid fundamentals: good margins, impressive revenue and income growth figures, and a solid cash position with almost no debt.
And yet...
While I was plenty happy with the stock's rebounding performance from levels flirting with 52 week lows through December and January, in the back of my mind the high short interest always troubled me. Could there really be that many people betting against this company? Had I missed something in my research? Now with this past quarter's results in the bag, it seems that it was the short sellers who were betting on the wrong side.
Small cap companies tend to attract greater short interest because they tend to have a smaller float and lower daily volume, which 1) makes price manipulation by large sell-offs or buy ups more feasible and 2) increases volatility and the possibility of large percentage gains or losses very quickly. In this case, however, I think that the short sellers will be forced to cover at a significant loss after this earnings beat. Currently one in six shares of INVN are sold short. With the stock price moving up on positive company performance, I have to believe that the shorts will want to cover sooner than later.
Let's recap: Invensense is a supplier to some of the biggest names in the fast-growing tablet and smartphone space. They have impressive top and bottom line growth figures and have identified new markets that can help sustain that growth into the future. Even now, the company is fairly cheap given its growth potential and is trading with a PEG of only 1.2.I like Now add the solid balance sheet on top of all of that good news.
For these reasons Invensense is perfectly positioned for a short squeeze to help send its share price above the $15 mark. Those that missed out on buying this company before the earnings came in can still reap the benefits. 2013 is shaping up to be a big year for this up and comer.
arkhon owns shares of Invensense. The Motley Fool owns shares of InvenSense. The Motley Fool is short InvenSense. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
