Lots of questions about this one, so as I run out to a meeting today I’m re-releasing it for you — Navellier’s pitch is in heavy circulation again, and the ad is still touting the same stock as his similar ads of a month ago. The article below first ran on July 16, when the stock was a bit over $20 — it dipped a bit going into earnings, then had another mild earnings beat and gave guidance that had analysts boosting their estimates very slightly and bounced back up, then has more recently been on the decline (including today), and the stock now sits about a dollar below where Navellier teased it last month.
Apparently his enthusiasm has not changed, so my teaser-solution article below is also unchanged … I’ve added a brief note at the bottom, and have also appended the original comments from last month for your information. Enjoy!
–following originally published 7/16/15–
Louis Navellier has a new pitch out for a “wireless electricity” stock — one that he says is on the cusp of a revolutionary change that will lead not only to a world where you can charge the devices in your home without power cords, but a world without power outages as transmission lines are replaced by wireless technologies.
Sound exciting? Of course! And almost all technological things seem feasible in the abstract, particularly when you consider that most Americans were wowed by radios 100 years ago, and color television was still quite new 50 years ago… to say nothing of the huge difference that the mobile internet has made in most of our lives in just the last five years.
So what’s he recommending that’s so secret he can’t tell you until you subscribe? Let’s check out the clues … this particular ad, unlike most, didn’t have a “transcript” version, so I actually had to listen to the whole dang thing. This is the surest sign possible of my love for you, dear irregulars — sitting through a full “video” presentation is a special form of torture, even if it was only twelve minutes.
The basic spiel?
“When I think how this little company’s emerging technology could change how power is transmitted in the world, the investment potential give me goosebumps.”
That’s Navellier getting the goosebumps, of course — not yours truly. I save my goosebumps for more auspicious occasions, like birthdays and anniversaries.
And he says that this kind of change would be akin to investing in Amazon or Apple in the early days…
“This company could follow in the footsteps of Apple and Amazon and turn $1,000 into $200,000 or more.”
Those numbers are based on 20 years, it appears — that’s about how long it has taken for AMZN and AAPL to return 2,000% (Amazon has been much more volatile, but their returns over the last 20 years are extremely similar).
And the ad points out that both of those stocks saw dips of 20% or more early in their public lives, when investors “jumped ship” and didn’t realize how revolutionary these companies would be… and, more from the ad…
“I expect most investors will miss the potential in this little company’s wireless power technology, too.”
Navellier also says his Emerging Growth advisory has beaten the market 6-to-1 in the last 16 years — I assume there’s some real performance number that he’s using (and has run by his lawyer) to claim that kind of performance, but the numbers from Hulbert are much different (Mark Hulbert tracks the portfolios of a couple hundred investment newsletters, including a couple of Navellier’s, and he says Emerging Growth has posted an annualized 0.3% return over the past 15 years. The S&P has not done great over the last 15 years, with a 40% return, but that’s still 2.25% annualized.
(This is not entirely fair — Hulbert’s numbers were for the 15 years ended December 2014, the S&P numbers I took are from this month, but that wouldn’t sway it that dramatically)
To be fair, Navellier’s Blue Chip Growth — which buys large cap stocks and is much cheaper ($150 vs. $995 for Emerging Growth) — has beaten the broad market over the last 5, 10 and 15 years. (Hulbert compares to the Wilshire 5000, not the S&P 500, but the numbers wouldn’t differ dramatically — the Wilshire is up 53% in 15 years, versus 40% for the S&P 500.)
But, of course, we all know that the performance claims of most newsletters are based on their favorite winning stocks, or on “open” positions to ignore the “stopped out” stocks, not on any kind of real portfolio return that an investor might be able to emulate. We’re just looking for some stock ideas, right?
So what’s the idea this time for this “easy double?”
Here are our clues:
135,000% earnings growth…
“This company has carved out a critical niche as an innovator in wireless infrastructure and wireless power and receive transmitter solutions”
HTC, Samsung and Kyocera are apparently integrating “this kind” of wireless power technology.
He mentions lots of other possibilities for wireless power, with hotels and restaurants considering integrating it, car companies thinking about how to use it, and hospitals and manufacturers will be using it to reconfigure their electronics to have a “cleaner” setting without masses of cables. To say nothing of fixing or replacing the aging power grid.
And as Navellier always does, he drops some names…
“This is why big institutional investors like State Street, BlackRock and Vanguard have suddenly become very interested… and have already scooped up millions of shares of our company’s stock”
Those are among the largest indexed money managers with their index funds and ETFs, so that probably just means that this little stock is in an index — not that those particular institutional money managers have sussed it out as a hot pick. And, of course, it’s hard to find a company of any size where those big institutional investors haven’t “scooped up millions of shares.”
But I digress. Any more clues?
Not really, but one last “promise” from Navellier:
“If you hold on for the longer term, five to 10 years, and this company revolutionizes teh wireless industry the way Apple revolutionized smart phones and computers… a $1,000 investment could grow well into six figures.”
So this company has “already left the launch pad” and Navellier thinks that getting in now will give you an easy double by the end of the year. What is it?
Thinkolator sez we’re being teased about… Integrated Device Technology (IDTI)
Which did, in fact, post an incredible-sounding earnings growth number of 135,000% last quarter — though that’s mostly just a math anomaly, it so happens that they went from earning two hundredths of a cent per share in the first quarter of 2014 to reporting earnings of about 29 cents in the first quarter of this year. That isn’t so terribly shocking for a company that’s just bouncing back to profitability after a few bad quarters, and it was more or less what the market was expecting (they beat earnings expectations by about 11%, they’ve been consistently beating expectations by similar margins over the past year). The more realistic view of the company’s growth probably comes from revenues and analyst estimates — the average estimate is for 10% revenue growth this year and 16% next year, and they think that the company will post profit growth of about 38% each year for the next five years.
And that represents a comeback, of sorts — IDTI has seen declining revenue for most of the past seven years, until this past year, when margins improved considerably by cutting both operating costs and R&D as a percent of revenue (really, just by keeping those numbers mostly flat while revenues grew). I’m no expert on this company, but it’s encouraging that they’ve finally gotten some revenue growth going — the first glance makes it appear that they were probably getting a lot of their revenue from the desktop/laptop computer segment five and ten years ago, so there’s been some adjustment to cope with declining demand from that segment as they’ve built up revenues in communications and power management and gotten design wins in more attractive mobile and higher-end devices.
Their wireless charging technology is not going to change the world in the next six months, and it’s far less “revolutionary” than the wireless charging networks designed by previously teased Energous, from what I can tell, but they are certainly further along in commercializing them… and, perhaps more importantly, they’re selling chips and making money in other areas of their business. Their wireless charging technology is the relatively “standard” stuff that’s available now, their chips are built in to the Ikea furniture that has wireless charging “pads”, though it’s unclear to me when that’s going to become a major part of their business. They support the major standards in wireless charging and call themselves a leader in that segment, though I don’t know whether that’s a fair claim or not — they describe their basic wireless power offerings here, and they say in the last quarter’s press release that wireless charging has become an “established” business now.
To get a bit more flavor on where their business segments are now, and where the company sees them going, you can check out the transcript from their Analyst Day presentation here. They definitely say all the right things about getting out of unsuccessful segments and reinvesting in areas where they can be a “category killer”, so that’s encouraging — and they have done a fair amount of divesting and restructuring over the past couple years. Whether that turn around will continue with more design wins, and whether revenue growth and earnings growth will follow, well, that’s still an open question — analysts are positive and generally have price targets in the high-$20s, so they’d probably tell you, like Navellier is doing, that the recent drop from $24 is an opportunity.
Navellier is pitching this based on the same “wireless transmission/wireless charging” trend as the “Midas Supergroup backs wireless charging” stock teased by Nick Hodge back in February — though that was for a different stock, Energous (WATT), which doesn’t have either earnings (or earnings growth) or institutional ownership. WATT is down about 25% this year while IDTI is more or less flat (up a few percent), so going with the bigger player has certainly been the better bet so far.
And, of course, IDTI is not a “pure play” on wireless charging — probably a good thing, given the so-far unpredictable nature of that particular trend, where consumer preferences aren’t really clear yet and there isn’t a single standard that’s getting widespread adoption. And I don’t want to be too snarky, but I’d guess that until Apple adopts a wireless charging standard no one’s going to trust it fully and sell a lot of wireless charging systems — and Apple likes to upend established standards to suit their own needs anyway. Since no one company “owns” wireless charging, you’ll also probably notice that lots of other big chip companies — substantially larger than IDTI — are competing for design wins in this area, including Broadcom and Texas Instruments. IDTI did “win” the wireless charging chip slot in the Apple Watch, so perhaps that’s a good sign of things to come — but it’s not a company maker. I’ll be curious to see if inductive charging makes it into the iPhone in the next year or two — that would probably give the whole segment a boost if it happens, since iPhone sales volume is so massive, but, as we’ve seen from Invensense (INVN), getting picked by Apple doesn’t always lead to shareholders dancing in the street (INVN’s margins were crushed because the big volume of business they “won” from Samsung and Apple came with a heaping dollop of price pressure and smushed their margins).
IDTI’s financial position and valuation are pretty reasonable — it’s a small but not inconsequential company, with a market cap of about $3 billion, and they have just about $500 million in cash… so even if their earnings don’t turn out to be fantastical over the next few quarters, they ought to be able to boost earnings per share just by implementing the $300 million buyback they’ve authorized. According to analyst estimates, at $20 the stock is now trading at about 16X this year’s expected earnings, and about 15X 2017 earnings (they started their 2016 fiscal year on April 1).
Not too bad, but they’re in a very competitive business not just in wireless charging chips but in wireless communications, the clock management systems they’re probably best known for now, and other power management solutions. Will they continue to post improving numbers like they did over the past year, or will they revert to the disappointing trend of the previous five years? Beats me, but it’s an interesting turnaround play that’s not terribly expensive, and Louis Navellier, at least, thinks the stock will top $40 by the end of 2015… we’ll keep an eye on our tracking spreadsheets and see if he turns out to be right.
P.S. Back to August again now — the stock still has a very low PEG ratio given expected growth, and the company continues to guide for 20%+ revenue growth. You can see the transcript of their latest earnings call here, and it looks to me like analysts are not getting super-optimistic about the stock given its disappointing history, the average earnings estimate for next quarter is 31 cents, exactly in the middle of the forecasted range from management (30-32 cents).