There’s an old joke out here in the Silicon Valley region that says you can always spot a tech-market pioneer.
Just look for the guy with the arrows in his back.
It’s a funny line, to be sure. But it makes a great point: It’s not enough to be “first” with a new technology … there also has to be a market to sell to. Any innovator – be it an individual inventor or a big corporation – that reaches a market too early and alone could end up being savaged by the wild frontier.
That’s not an issue with InvenSense Inc. (NYSE: INVN), a Sunnyvale, Calif.-based sensors firm that we talked about here back on May 17.
InvenSense, I told you, is a market pioneer. And it’s also a terrific way to play the zooming surge in mobile technology – and for a very simple reason: The company’s timing was spot-on. InvenSense developed the right products for the right market at precisely the right time.
It’s a pretty basic formula. But it’s also very powerful. Indeed, InvenSense’s market-leading technology is a key reason I said there’s a good chance these shares could double in less than three years.
That wasn’t hype: InvenSense has soared almost 40% in the 10 weeks since I introduced you to this stock, which is why I’ve been forced to alter my outlook for the company’s share price.
And that’s just for starters.
Obviously I now believe that this stock could double in a much-shorter time period.
But that isn’t the biggest change to my forecast.
You see, I also now see a much, much greater possible upside for INVN shares – and a much-bigger potential profit for InvenSense shareholders.
All because of something that happened last Wednesday …
The Risk Investors Should Really Fear
When I first told you about InvenSense in the Strategic Tech Investor column back in May, I said it was exactly the type of fast-moving technology stock you have to own if you really wanted to add heft to your personal net worth.
Many investors might look at InvenSense and see a stock that’s just too risky – and choose, instead to put their money into a nice, “safe” blue-chip play.
But investors who made that choice faced an even bigger risk – the risk of getting left behind.
And over the long haul, that risk is far more serious.
Getting left behind means inflation has eaten away at your buying power, that you won’t have the money you need to live on in old age and – worst of all – that you could easily outlive your money.
That’s why I’m such an ardent advocate of tech-stock investing.
It’s why I spend so much time identifying high-growth opportunities like “Big Data,” the “Internet of Everything” and the “Mobile Wave.”
And it’s why I created my five-part strategy for building wealth through tech: I want to help you find stocks like InvenSense that can potentially double in price.
And INVN’s 10-week jump of nearly 40% shows that this wasn’t just hype.
And when I saw what happened last Wednesday, I knew that the “double” I predicted could be just the beginning.
That was certainly true last Wednesday when shares of this maker of motion-sensing chips jumped 13% after the company reported a blowout fiscal first quarter and then boosted its guidance for the fiscal second quarter – the one that InvenSense is operating in right now.
It’s Changing Our Lives
You don’t need to be a New York investment banker or read The Wall Street Journal to understand that mobile technology has transformed the way we live.
All you have to do is look around.
Sit on a bench at your local mall and watch as shoppers move past you – their eyes glued to their smartphone displays.
We shop by phone or tablet, get our sports scores while on the go and even watch movies on those tiny screens (well, “tiny” in contrast to the massive new UHDTV displays).
No wonder smartphones and tablets are outselling PCs by a 5-1 margin.
And InvenSense has been a big part of that success story.
You see, the decade-old company makes components that have become integral to the operation of mobile devices.
But that wasn’t always so.
InvenSense earned its first set of stripes by supplying parts for the Nintendo Wii. At the time, game consoles represented 80% of sales.
But today, InvenSense is focused on the high-growth mobile field, which now brings in 80% of revenue. The strategic shift turned out to be a brilliant move.
InvenSense now has a stranglehold on the entire mobile sector…
Take gyroscopes, for instance. Thanks to those tiny devices, you can turn your smartphone or tablet upside down or sideways … and still have the content displayed in an upright – and readable – orientation.
If it weren’t for that, every smartphone attempt could turn into a high-tech-sector version of the “Blair Witch Project,” the 1999 “lost-tapes” mockumentary whose nausea-inducing, shaky-camera realism sent scores of ticketholders racing for the restroom.
And that definitely isn’t a recipe for high growth in a pioneering new technology.
Now you know why InvenSense is such a strong performer…
A Powerful Catalyst
In the company’s fiscal first quarter, which ended June 30, revenue rose 43% from the year-ago period to reach $55.9 million. The company earned 14 cents a share in the quarter – a 40% gain from last year.
Because Wall Street had forecast $54.4 million in sales and per-share earnings of 12 cents, INVN’s top- and bottom-line results both beat expectations.
That alone would have ensured a rally for the stock. But InvenSense also raised guidance for the current fiscal quarter, giving it another powerful catalyst.
CEO Behrooz Abdi is now projecting sales of between $68 million and $70 million … compared with the earlier analyst consensus forecast of $66.3 million. Abdi said the company could earn between 19 cents and 20 cents, compared with the consensus forecast of 18 cents.
“This is a very exciting time for the company,” Abdi said when he released the financial results to investors. “With our product performance achievements and product roadmap, we are enjoying strong competitive positioning.”
A “Conservative” 70% Profit
When I told you about the stock on May 17, I said that InvenSense had the power to double.
In conjunction with the higher forward-looking forecast, Abdi’s statement is one of the reasons I’m now so optimistic about INVN’s potential performance.
With the gain of nearly 40% in just a few weeks, the stock is already at $17.50 and has posted nearly half of the gain I originally predicted.
But don’t worry if you didn’t buy when I first mentioned it: I still see plenty of upside.
In fact, I’d be surprised if the stock doesn’t hit at least $30 a share by the end of 2015 – a projected gain of nearly 140% from where I first recommended it and a 70% run from current levels.
I didn’t just pick these numbers out of the ether.
You see, the fiscal-first-quarter stunner wasn’t an isolated incident.
In fact, I pretty much expected it.
That’s because I knew from my research that InvenSense has grown earnings by an incredible 140% over the past three years.
And I expect this torrid growth to continue.
However, just to be cautious, and to build in a “margin of safety” – never a bad thing, especially in a high-flying market like this one – I constructed a “financial model” of INVN in which earnings grew a more-conservative 25% a year for the next three years.
That gives us 2015 earnings of about $1.20. If the stock traded at 25 times earnings – which is actually less than the current Price/Earnings (P/E) ratio of 29, we end up with the share price of $30 that I mentioned to you just a moment ago.
No other sector besides high-tech can deliver gains of this magnitude on such a regular basis.
That’s why I want you to continue to join me here at Strategic Tech Investor as I share the tips, insights and tools needed to help you build the kind of life you’ve always dreamed about.
That’s one dream that’s well within your grasp …
[Editor’s Note: If you bought InvenSense shares back when we recommended them, we sure would like to hear from you here – please feel free to post a comment below. If you didn’t, but would like to read our original recommendation on INVN, we’ve posted a link here for your convenience. See you all Friday.]