Watch Out: Barbarians At The Gate For 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.

Trade-Ideas LLC identified InvenSense ( INVN) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) 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 $23.4 million.
  • INVN has traded 2.3 million shares today.
  • INVN traded in a range 255.5% of the normal price range with a price range of $1.25.
  • INVN traded above its daily resistance level (quality: 6 days, meaning that the stock is crossing a resistance level set by the last 6 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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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 6 analysts that rate InvenSense a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for InvenSense has been 1.4 million shares per day over the past 30 days. InvenSense has a market cap of $1.4 billion and is part of the technology sector and electronics industry. The stock has a beta of 2.58 and a short float of 30.9% with 14.74 days to cover. Shares are down 7.1% year-to-date as of the close of trading on Monday.

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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, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • INVN's very impressive revenue growth greatly exceeded the industry average of 3.4%. Since the same quarter one year prior, revenues leaped by 73.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 4.70, which clearly demonstrates the ability to cover short-term cash needs.
  • INVENSENSE INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, INVENSENSE INC reported lower earnings of $0.07 versus $0.59 in the prior year. This year, the market expects an improvement in earnings ($0.46 versus $0.07).
  • INVN's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 30.71%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • 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.

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