What InvenSense, Inc. Needs to Prove This Earnings Season

By Markets Fool.com

Shares of InvenSense a well-known vendor of motion sensors, have been in the doldrums for months now. This has been a particularly frustrating time for shareholders, particularly as the company finally managed to win spots inside Apple's iPhone.

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That's not to say the relatively poor share price performance is undeserved. InvenSense has faced some execution issues, margins are currently under pressure for a number of reasons, and the company has even faced headwinds from overly enthusiastic analyst estimates.

InvenSense is scheduled to report its fiscal-fourth quarter earnings following market close on May 4. Let's see what investors should be looking for when the company reports.

What's in store for this quarter?
At its prior earnings call, InvenSense guided to third-quarter revenue in the range of $95 million to $98 million; current analyst estimates are calling for $97.21 million. That figure is near the high end of the range, but given that Apple reported better-than-expected iPhone sales, it wouldn't be surprising to see InvenSense meet or even exceed the number.

Analysts are also calling for $0.12 per share in non-GAAP earnings per share, smack-dab in the middle of the guidance range that InvenSense's management gave during its last earnings call.

It seems analyst expectations for the quarter are within the range InvenSense had previously guided to, which suggests that the company doesn't have an unreasonably high bar to clear.

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Looking ahead
As an InvenSense investor, I'm not too worried about whether InvenSense will make the numbers this quarter, barring a completely unexpected one-time event. Where the uncertainty lies is in what InvenSense guides for the coming fiscal year.

Right now, analyst consensus is calling for $441.73 million in sales next year, or roughly 19.4% year-over-year revenue growth. That's a significant slowdown from the expected 46.50% growth InvenSense is expected to see during fiscal 2015.

That said, if InvenSense guides to 19.4% growth or better for the coming fiscal year, it would appear to suggest that InvenSense is doing a good job of blocking and tackling. Such a growth number might strongly suggest that InvenSense will largely keep its positions at its current major customers while executing on its content share growth and adjacent opportunity stories.

Analyst consensus also calls for InvenSense to grow its earnings per share from $0.46 during fiscal 2015 to $0.68 in fiscal 2016, representing 47.8% year-over-year EPS growth -- outpacing expected revenue growth. This outlook seems to suggest that analysts are expecting InvenSense to cool it on operating-expense growth next year relative to revenue and gross-profit margin growth.

How will InvenSense achieve this growth?
A common question among analysts and investors with respect to InvenSense is, simply: What's next?

The idea is that Apple is in most, if not all, of the major flagships devices, which will make finding additional growth opportunities tougher.

Well, if you believe InvenSense's management, there's still plenty of opportunity ahead. CEO Behrooz Abdi claims that by offering technologies such as optical image stabilization, motion system-on-a-chip products, MEMS microphones, and value-added software, InvenSense is "pretty much doubling [its] content opportunity."

Abdi also indicated that this significant increase in content opportunity is in addition to increases in attach rates of InvenSense technology, as well as "market improvements," by which I believe he means unit growth within the high-end smartphone market.

Finally, Abdi is bullish on InvenSense expanding into adjacent markets such as wearables (although not winning the Apple Watch is a big setback), gaming controllers, and TV motion remotes for smart TVs.

InvenSense ultimately needs to show that it can defend its current businesses and capture these adjacent revenue opportunities. The company's fiscal 2016 revenue guidance should give investors a hint as to whether it's succeeding in doing so.

The article What InvenSense, Inc. Needs to Prove This Earnings Season originally appeared on Fool.com.

Ashraf Eassa owns shares of InvenSense. The Motley Fool recommends Apple and InvenSense. The Motley Fool owns shares of Apple and InvenSense. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.