Will This Downgrade Hurt InvenSense (INVN) Stock Today?

Story updated at 9:50 a.m. to reflect market activity.

NEW YORK (TheStreet) -- InvenSense  (INVN)INVN was downgraded to "neutral" from "buy" by Goldman Sachs Monday.

Shares of InvenSense fell -3.6% to $24.08 in morning trading.

The analyst firm set a price target of $25 for the stock. The downgrade is a valuation call as InvenSense lacks near-term catalysts according to Goldman Sachs analysts.

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Separately, TheStreet Ratings team rates INVENSENSE INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate INVENSENSE INC (INVN) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 8.8%. Since the same quarter one year prior, revenues rose by 19.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, INVN's share price has jumped by 43.10%, exceeding the performance of the broader market during that same time frame. Although INVN had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • Despite currently having a low debt-to-equity ratio of 0.43, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 5.69 is very high and demonstrates very strong liquidity.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electronic Equipment, Instruments & Components industry. The net income has significantly decreased by 146.8% when compared to the same quarter one year ago, falling from $10.32 million to -$4.83 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, INVENSENSE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: INVN Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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