Roof Leaker To Watch: InvenSense (INVN)

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.

Trade-Ideas LLC identified InvenSense ( INVN) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified InvenSense as such a stock due to the following factors:

  • INVN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $73.4 million.
  • INVN has traded 3.1 million shares today.
  • INVN is trading at 5.49 times the normal volume for the stock at this time of day.
  • INVN crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on INVN:

InvenSense, Inc. designs, develops, markets, and sells micro-electro-mechanical system (MEMS) gyroscopes for motion tracking devices in consumer electronics. Currently there are 8 analysts that rate InvenSense a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for InvenSense has been 2.9 million shares per day over the past 30 days. InvenSense has a market cap of $2.1 billion and is part of the technology sector and electronics industry. The stock has a beta of 3.26 and a short float of 34.5% with 7.36 days to cover. Shares are up 12.4% year-to-date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates InvenSense as a hold. 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 ratings report include:
  • The revenue growth came in higher than the industry average of 3.5%. 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 33.27%, 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 5.99 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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