Why Did InvenSense Rise 113% Since its IPO?

While many IPOs struggle to rise, InvenSense has risen more than 100% since its debut. Why? That's what we wondered. Whereas Zynga ZNGA initially tanked during its initial public offering (and only rebounded on rumors of a major entry into the world of online gambling), InvenSense INVN has been growing steadily since its public debut three months ago. And when it finally took a hit on January 26, the stock rebounded two days later. What makes investors so eager to jump on board InvenSense while ignoring other, more prominent IPOs? For starters, the company is responsible for developing some of the most unique and essential motion technology featured in our favorite electronic devices. These devices include (but are not limited to) smartphones, tablets, and game systems like Nintendo Wii. Without InvenSense's gyroscope technology, Wii couldn't provide a true 1:1 experience in motion response times. In fact, the console originally shipped without InvenSense's gyroscope. Consequently, the Wii's motion-based controls weren't very responsive. But when it came time to develop an adaptor to remedy this issue, Nintendo turned to InvenSense. The MotionPlus adaptor and Wii Remote Plus were born, allowing Nintendo to develop games that provided an immersive experience with more intuitive motion controls. In addition to designing technology that few others have managed to imitate, InvenSense is currently without much competition in the development of micro-electro-mechanical systems (MEMS) gyroscopes. Despite this, gyroscopes are becoming increasingly popular in just about every game-related device you can fathom. Thus, InvenSense expects its technology to continue to be a big part of tablets and smartphones, both of which are a growing part the game industry. Where specifically will consumers encounter InvenSense technology? During an interview with Benzinga, Alan Krock, InvenSense's Chief Financial Officer, mentioned Samsung and HTC devices, but did not specifically say that InvenSense's technology would appear in their tablets or smartphones. Krock also pointed out that, since GPS features work best outside, smartphone manufacturers have to rely on motion technology to implement location-based solutions indoors. This is another niche market where InvenSense maintains a strong position. Thus far, analysts have provided a positive view of InvenSense. On December 27, Goldman Sachs initiatied coverage of InvenSense with a Buy rating. Piper Jaffray said the stock was overweight and that it believed InvenSense's proprietary manufacturing process “drives lower cost and better performance, making it uniquely positioned to benefit from this growth opportunity.” Oppenheimer also had praise for the firm, initiating coverage at Outperform with a $13 price target. “The catchy moniker ‘six-pack' of MEMS/NEMS (micro/nano electromechanical systems) is due to the 3 degrees of freedom that accelerometers and gyroscopes each allow, with InvenSense currently the only vendor that has integrated them,” Oppenheimer wrote in a report released on January 4. Investors should also note that Oppenheimer has mentioned InvenSense as a potential takeover target. However, Krock said that while the trend has been toward consolidation, it would be hard for a larger company to integrate InvenSense's technology into its products. Overall, Krock did not entirely rule out a potential sale of the company in the future, but said that it would require a “substantial premium.”
Story co-authored by Louis Bedigian and Tuomo Kallio. Interview and trading ideas by Tuomo Kallio. You can follow us on Twitter: @LouisBedigian and @TuomoKallio