InvenSense Spins Out of Control

The world's top value investors love it when their best stocks ideas are selling at bargain-basement prices. For those investors, companies offering fire-sale prices become no-brainer buys. So regular investors like you and me would do well to emulate the masters and look at companies offering a "buy one-get one" sale on their stocks.

Gyroscopic sensor maker InvenSense (NYS: INVN) has found itself spinning out of control, with just the latest evidence being its announcement last month that company founder and CEO Steven Nasiri was stepping down immediately. Business is still growing at a healthy clip, though somewhat less than previously expected, and its customer roster is stellar, so while you'll naturally want to do more due diligence before buying in, this still might be an opportunity to pick up a quality stock at a severe discount.

InvenSense snapshot

Market Cap

$813 million

Revenues (TTM)

$169 million

1-Year Stock Return

9.9%

Return on Investment

25.5%

Dividend and Yield

N/A

Estimated 5-Year EPS Growth

54.5%

52-Week High

$22.35

Recent Price

$9.78

% Below 52-Week High

(55.9%)

CAPS Rating (out of 5)

*****

Source: FinViz.com. N/A = not available; InvenSense doesn't pay a dividend.

Let's just make sure there's nothing more seriously wrong with it before you go and plug it into your portfolio.

On the go
The market analysts at DigiTimes Research expect smartphones to grow another 30% in 2013 to 865 million units as new players such as Amazon.com (NAS: AMZN) capitalize on deepening market penetration and join established industry leaders Apple (NAS: AAPL) , Samsung, and Research In Motion (NAS: RIMM) . Particularly as emerging markets expand, the opportunities for growth in smartphone sales show no sign of abating.

A similar explosion is under way in tablet computing, where Gartner says businesses especially will drive growth, purchasing some 12 million units by the end of this year and more than tripling to 53 million units by 2016. Between smartphones and tablets, they're expecting some 1.2 billion units total to be sold next year.

A sense of vertigo
Those kinds of numbers ought to be propelling InvenSense higher, but instead the stock has been in something of a freefall. Surprising, really, since Samsung and Nintendo are two of its biggest customers, and certainly the former's Galaxy series of smartphones has been hugely successful. But component shortages have weighed on InvenSense's ability to meet demand, but that isn't endemic to just the gyro maker but was rather an industrywide problem that's now just about over.

The goal of InvenSense has been to work with all the industry players, though so far it's been shut out of Apple, which has chosen instead to go with STMicroelectronics (NYS: STM) . As Matthew DiLallo has noted, it's a curious development because InvenSense's sensors are built into ARM Holdings' (NAS: ARMH) chips, which are themselves used in Apple products but they've still opted for ST. While they're closed-mouthed about recent customer wins, their earnings call seemed to hint at least that perhaps soon they'll break through Apple's wall.

InvenSense also noted that ST has a lead with Intel (NAS: INTC) as well, but they're working to accelerate their own offerings there. With a presence in Amazon's Kindle HD Fire tablet and Google's (NAS: GOOG) Nexus 7, it does have a broad offering that doesn't seem to warrant the kind of drubbing its stock has taken.

Free wheeling or free falling?
Abrupt management changes like that engineered by InvenSense are hardly welcome developments, but Nasiri was around for the conference call that followed the news and will still be hanging around as an advisor for a bit to help smooth the transition. I believe that with the product development under way, partnerships with leading industry players, and growth trends that favor it, InvenSense will overcome the CEO stumble, but with its enterprise value trading at 26 times its free cash flow, the price may be a tad steep yet.

Let me know in the comments section below if you think InvenSense can get its bearings again and rise with the mobile industry.

Have half a mind
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The article InvenSense Spins Out of Control originally appeared on Fool.com.

Rich Duprey owns shares of Apple and Intel. The Motley Fool owns shares of Apple, Amazon.com, Google, Intel, and InvenSense. Motley Fool newsletter services recommend Apple, Amazon.com, ARM Holdings, Google, and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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