After a feeble start to the year, shares of chip producer InvenSense (INVN, Financial) have at long last started picking up some steam. The stock is presently up 8% in 2014, despite posting powerless final quarter results and sporting a high P/E ratio. Indeed, InvenSense trades at a sky-high trailing earnings ratio, which seems unjustified for an organization that posted just 7% development in revenue in the final quarter. Investors seem to be wagering on rumors that InvenSense may arrive at a spot in Apple's (AAPL) iphone 6, furthering the development in movement sensor applications in various devices.
In any case, is the stock worth so much risk? We should discover.
Aggressive R&D investments
InvenSense has been making investments to increase its piece of the overall industry in its center portable business as indicated by CEO Behrooz Abdi. As a result, administration claims that it now has access to new and energizing opportunities in rising applications.
InvenSense has seen a steady increase in connect rates of gyroscopes in a wide mixed bag of applications. The organization has also developed its presence in the optical picture stabilization business, wearables and fitness devices to drive development.
Understanding the imperativeness of item development, Invensense is making significant investments around there. This is permitting the organization to convey exceptionally separated solutions, and empowering it to value its products in the premium extent to keep up stable margins with further opportunity to get better.
The organization's increased investments in research and improvement helped it support three essential activities, in particular new item advancement, expansion of its software and calculation capabilities, and the increased costs associated with extensive new customer capability activities. Consequently, it has increased the quantity of system on chips (SOC) coordinated in its computerized movement processors, which will permit faster and more productive calculation and software.
InvenSense sees opportunity in the wearable market because of its fast-developing nature, and it can influence its elite Motiontracking sensors, DMP, algorithms and software to address the needs of this business sector. The organization has also reported a joint cooperation with Sonion, which is a pioneer in amplifier engineering and solutions, to quicken item advancement. All these investments should permit the organization to profit from the accompanying two prospects.
Smartphones in China
InvenSense is seeing solid development in China, where its 6-axis Motiontracking solutions and 2-axis optical picture stabilization products are picking up footing. Not just this, its gyro join rates keep on increaing in mid- and top of the line smartphones such as Xiaomi and OPPO. This is a huge open door for InvenSense, as the Chinese smartphone business is going to develop at a stupendous speed in the coming quarters because of the takeoff of LTE.
A potential Apple contract
Moreover, several top of the line brands have started embracing optical picture stabilization solutions. Presently, Apple is supposedly wanting to incorporate an optical picture stabilizer in the iphone, and this is one top of the line brand where Invensense may arrive a design win.
InvenSense expects its 6-axis Motiontracking Soc product offering to keep developing at a marvelous pace later on. Also, administration is positive about its prospects and believes that fiscal 2015 will be an alternate year of development for the organization. It intends to increase its stock, which will empower the organization to increase its ability. On the off chance that InvenSense is truly equipping to supply chips to Apple, then it better be ready with a higher generation limit since the Cupertino-based organization is required to sell an astounding 80 million iphone 6 units this year.
Conclusion
While truly InvenSense is exchanging at a high earnings different and close to its 52-week high, the organization is slated to profit from development in wearable devices, smartphones and a potential contract from Apple.
The organization is investing aggressively in research and improvement, and cut its losses down the middle in the previous quarter. Considering InvenSense's potential, it may be a decent thought to purchase some shares as the stock can soar to new highs later on.
