Why InvenSense is a MultiBagger in the Making

Simon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you're investing in small companies, you've got to think BIG.

You want to find companies that 1) offer great products, 2) to markets with huge potential, and 3) at the right time.  Think Wal-Mart into mass retailing in 1972.  Or then Amazon into internet retailing in 1996.

There's a company today that is largely flying under-the-radar that I believe has a similar BIG opportunity.   Thus, I introduce InvenSense (NYSE: INVN).

 

 

InvenSense is the world's leading developer of microelectromechanical system (MEMS) components for consumer electronic products. 

Microelectro...huh?

In a nutshell, MEMS provide an electronic response to movement.  If you move a product that contains InvenSense's components (called gyrometers, accelerometeres, and compasses), it will do something.

Give your imagination a second to think about the possibilities for this.  The bread-and-butter of consumer electronics has been in maximizing the user experience.  The iPhone has absolutely crushed Research-in-Motion's (NASDAQ: BBRY) Blackberry over the past 5 years.  Touch-pads and finger-scrolling provided a better experience than the tracking ball and that cramped-up keypad.  If you don't believe me, try navigating the internet with an iPhone side-by-side with a Blackberry Curve.

Users gravitate to the devices that provide the best experience.  Using motion as a substitute for pushing buttons is much more user-friendly and could open a Pandora's Box of potential opportunities. 

Where They've Been

To give you a feel for how InvenSense has already made a name for itself, here are a few successful products that have used their components in recent years:

  1. Nintendo Wii - As of the end of 3Q'2012, there were over 97 million Nintendo Wii's sold globally, which all contained InvenSense components in the controllers.  Sales of the Wii topped those of Sony's Playstation III or Microsoft's (NASDAQ: MSFT) XBox360.  InvenSense has given the Wii the freedom to escape traditional gaming with handheld controllers to utilize full-body movement as controls for its games.  From tennis to Zelda, the Wii seemed to bring players directly into the games.  And don't think the competitors haven't noticed.  Microsoft's XBox 360 launched the Kinect in 2010, which was similar to the Wii in that it detected body motion.  Though the Kinect did not use InvenSense's components, there is certainly a shift in the gaming industry to full-motion controllers.
  2. Black and Decker Motion-Activated Screwdriver - In August 2012, Black & Decker (NYSE: SWK) introduced the world's first motion-activated screwdriver.  There was no longer a need to manually turn the drill or to hold it steady while pulling the trigger.  For the GYRO 4V MAX, all handymen needed to do was turn their wrist in the direction they wanted the screwdriver to turn.  It even allowed variable speed control, so a slight turn would be less pronounced.  The product is the second best selling industrial screwdriver on Amazon.com and has received a Seller's Ranking of 4/5 Stars.

The Opportunities

To better manage their business, InvenSense has internally identified and organized the company into five market segments.

  • Smartphones & Tablets - to improve any applications for mobile devices that might use navigation, games, or location-based services.  Think about a phone that tracks your current speed or location.
  • Gaming - for precise tracking of movement as a replacement to tradition hand-held controllers.  Think about the Nintendo Wii Sports games.
  • Smart Televisions - to use motion for browsing and selecting content, as a replacement to inconvenient touch pads and keyboards.  Think about moving the controller right to Play, or double-left to Rewind.
  • Health & Fitness - variety of opportunities in activity monitors, fitness devices, and sports equipment. Think about golf clubs or tennis racquets that can instantly analyze your swing.
  • Optical Image Stabilization - to reject the distorted effects of hand jitter in high resolution photography.  Think of simple handheld-cameras that can take high-res pictures without the blur.
  • Industrial - variety of uses, including the B&D drill and larger-scale industrial machinery processes.

Further encouragement comes from research from France's Yole Developpement.  The firm predicts that the worldwide market for MEMS will increase from $11.5 billion today to $21 billion in 2017.  That's a 13% annual revenue growth for the industry, among which InvenSense is a first-mover.

InvenSense is a 'Rule-Breaker'

Being the first-mover in a new and emerging industry is one of the characteristics that David Gardner looks for in his world-famous Rule-Breakers.  After making a name for itself in gaming, InvenSense has a blue-sky of opportunities to jump into. 

But selling at $9.77 per share and at 15 times earnings, the market simply isn't catching on to the moves that InvenSense is making.


TXinvestor82 owns shares of InvenSense and Microsoft.  The Motley Fool owns shares of InvenSense and Microsoft and has the following options:. Motley Fool newsletter services recommend Microsoft. 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!

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