This Stock Just Hit 85 on the C.H.A.O.S. Meter
- How will HBO, Political Ad Spending and Box Office Collection Affect Time Warner Inc’s Q1 Revenue?
- How Has Discover’s Revenue Composition Changed In The Last Five Years?
- By What Percentage Did Textron’s Revenue & EBITDA Grow In The Last 5 Years?
- How Has Duke Energy’s Revenue Composition Changed In The Last Five Years?
- Priceline Q1 2016 Earnings Preview
- MGM Resorts Q1 Earnings Preview: Watchout For Non-Gaming Operations Growth
I said it on Wednesday, and I’ll say it again: We’re not in a tech bubble. And we’re not set for a dot-com-style disaster. We’re merely in a much-needed correction.
And rather than fear it, you should embrace it. Why?
Because it allows us to buy great technology companies at cheaper prices.
And there’s no better way to find those companies than with my C.H.A.O.S. Strategy.
If you’re new to Tech & Innovation Daily, or don’t know how valuable C.H.A.O.S. is, let me show you . . .
The Beauty Behind C.H.A.O.S.
I revealed, “The company is in talks with Hewlett-Packard (HPQ) to incorporate its touch technology into HP’s printers, laptops and computers.”
I knew that once news broke, shares would jump. Two weeks later, Neonode confirmed it – and shares spiked by 10%.
Then, on April 16, I profiled Plug Power (PLUG). Shares were trading at $6.83. I noted that CEO, Andy Marsh, was set to announce a deal with a major automaker and to “have your money in before he speaks.”
After Marsh’s announcement, Plug shares soared 22.5% in one day!
But I also said to “sell immediately after the news,” due to Plug’s volatility, shaky fundamentals and its nasty habit of diluting shares.
Sure enough, it announced another big share offering a week later – and shares sank. It’s down 114% since that 22.5% rise. So thanks to C.H.A.O.S., we bagged a profit and avoided a train wreck!
Grab full details on how C.H.A.O.S. works here.
But let’s get on with things, because I’ve got a beauty for you today . . .
The Leader in Touch Technology
Founded in 1993, Immersion Corporation (IMMR) develops haptic technology, or “haptics.”
This is basically the vibrating feedback you get in smartphones and gaming controllers to enhance the experience.
In other words, haptics literally “touches” a user back.
Immersion is a big leader in this area. In fact, it just reported the best quarterly results in its history.
Having followed Immersion for some years, it convinced me to put the company to the ultimate test – C.H.A.O.S . . .
Immersion’s record-breaking first-quarter highlights included . . .
- $15.4 million in total revenue – up 11% over Q1 2013.
- Net income of $3.4 million ($0.12 per share), compared to $2.7 million ($0.10 per share) in Q1 2013.
- Cash and short-term investments of $81.3 million, versus $71.1 million in Q1 2013.
On a trailing 12-month basis, IMMR pulled in $49 million in sales – up 48% from this time last year.
Immersion went on to raise revenue guidance for 2014 to between $54 million and $62 million. That would represent a rise between 14% and 31% from 2013.
This is no fluke.
Immersion has consistently grown its revenue over the years, hitting the low $30-million range and never decreasing.
The company is also adept at converting that revenue into profit.
For the past four years, Immersion’s gross profit margin has remained above 90%. It reached 99% last year – better than every company in its industry.
In net terms, it’s a remarkable turnaround from 2009. Back then, Immersion had an abysmal net profit margin of -102%. In 2013, net margin hit 85%.
With $81 million in cash and no debt, Immersion can cover its assets five times over.
When you factor in Immersion’s cash advantages, the company has a P/E of 8.36 for 2014, compared to its 7.62 trailing P/E.
This means that the stock’s fair valuation is $11.47 – 10% higher than its current price.
C.H.A.O.S. Meter: 18/20
When Immersion’s haptic technology hit the market in the early- to mid-2000s, it noticeably boosted users’ interaction and enjoyment with their phones and videogames.
For example, if you’re playing a game of Madden Football, and your quarterback gets sacked, haptics enhances your experience by having the controller vibrate as he hits the deck. It also works in racing car games when you crash, or in battle games when you get struck.
And when typing messages on a touchscreen, a vibration confirms that your commands were successful.
But like every powerful new technology, haptics faced the dreaded “fad” or “legitimate trend” question.
It overcame that, but even more immersive technology is coming from outfits like Oculus Rift, whose virtual reality is taking interaction to even higher levels.
So for Immersion, the question becomes, “How can touch become part of the digital world?”
Well, Immersion is reinventing the field through what it calls high-definition (HD) haptics. How?
Well, as you know, touchscreens have visual displays behind them that track where your finger is. But you obviously don’t “feel” that. You just feel the glass under your finger.
It works fine, but doesn’t do a lot for the user’s experience.
But Immersion’s HD haptics fuses the real world with the virtual one.
Its HD Integrator and “Expanded Effect Library” allow equipment manufacturers to combine haptics with their own components and tailor the feedback to the scenario. For example, users can literally “feel” the guitar strings from the virtual guitar they’re playing on a smartphone app.
Immersion’s haptic software is the definition of high impact, because the company not only helped pioneer the haptics industry . . . it’s now expanding realism even further.
C.H.A.O.S. Meter: 18/20
Immersion boasts strong potential for acceleration . . .
- Earnings Reports: Immersion’s stellar earnings reports alone are near-term catalysts. But that’s not the only accelerant.
- New Deals: Immersion is also forging new business deals in new industries. On the most recent conference call, for example, CEO Victor Viegas announced a partnership between Immersion and a major media content provider. One that will launch Immersion’s technology into social media and mobile advertising. The company remains undisclosed for now, but once it’s revealed, Immersion shares should rise. Every major new deal that Immersion signs – and every new industry it breaks into – further validates its technology.
- More Coverage . . . Higher Price Targets: Wall Street is catching on to Immersion’s success. More analysts are initiating coverage of the stock. For example, B. Riley & Co. recently kicked off its coverage with a “Buy” rating and set a $16.50 price target.
- Share Buybacks: Immersion is fiercely accumulating its own stock. In the last quarter, it bought back 605,419 shares for $6.9 million. And it did so at an average cost of $11.20, affirming my fair value price in the “Cash” section. It indicates that the company is very confident about its prospects.
On the downside, Immersion has experienced some legal battles. For example, it filed lawsuits against HTC and Motorola (MSI) for patent infringements. Legal fees and any judgments against Immersion claims would be a blow.
However, Immersion holds substantial patent protection to maintain its competitive advantage.
C.H.A.O.S. Meter: 17/20
Immersion makes its money by licensing its “TouchSense” technology and software solutions to device manufacturers in a range of industries – mobile technology, consumer electronics, gaming and healthcare.
Immersion gets a majority of its total revenue from royalties and licensing fees.
It’s a business model that clearly works.
For Q1 2014, Immersion’s royalty and licensing revenue rose by 11%, compared to Q1 2013. The increase came primarily from a 96% surge in gaming licenses, due to the fourth-quarter launches of Sony’s PlayStation 4 and Microsoft’s Xbox One.
Immersion also saw a 26% jump in automotive revenue, thanks to a multi-year licensing deal with Tokai Rika, Japan’s leading supplier of auto systems and components for auto OEMs.
One negative is that licensing and royalty revenue can be inconsistent. For example, the correlation between Immersion’s revenue surge and new gaming consoles could be a one-time hit, since Sony and Microsoft don’t often release new systems.
C.H.A.O.S. Meter: 15/20
Haptics is a “re-emerging” industry. And as an undoubted leader, Immersion still has plenty of room to grow in its key markets – mobile technology, gaming and consumer electronics.
Of the three, mobile stands to be Immersion’s next major growth driver.
Aside from a big gap in the U.S. market, where Immersion’s haptic technology is primarily developed on Android and Windows platforms, the company is going global.
In September 2013, Immersion announced a partnership with China’s Xiaomi. At the time, Xiaomi’s Mi3 smartphone was launching … with Immersion’s tactile effects embedded.
Since then, Xiaomi has outsold Apple (AAPL) in China, with plans to expand into Malaysia soon.
As Xiaomi’s business grows, so will Immersion’s. In fact, word has it that Xiaomi has already increased its orders from Immersion.
And the positive recognition from Xiaomi’s expansion opens the door for others to enlist Immersion’s technology, too. In fact, Viegas has revealed substantial interest and preorders from Chinese OEMs this year.
And haptics not only furthers the actual experience, it improves safety.
Lastly, Immersion’s entry into social media and digital advertising is compelling. The belief here is that haptics can create immersive, real-time communication and emotional connections.
This ability to “reach out and touch somebody” plays a major role in advertising, too. Ad companies are looking to further engage potential buyers by incorporating touch into their pitches.
These are two lucrative revenue channels. And while licensing deals probably won’t be monetized until 2015, at the earliest, the future certainly looks bright.
C.H.A.O.S. Meter: 17/20
Final Verdict: So there you have it – C.H.A.O.S. just delivered an 85-pointer!
And you know what that means…
Buy this stock now, while it’s still cheap.
Immersion owns the exclusive rights to a very high-impact technology, with a highly effective management team, to boot.
The company boasts strong fundamentals, boatloads of cash, no debt, increasing sales, near-term price accelerators and realistic mid- to long-term growth drivers.
Not only that, shares are undervalued.
Based on this, Immersion is a stock you should own.
If you’re hesitant about the market conditions, buy a 50% position now, and set a limit order at a cheaper price for the remaining half.
Your eyes in the Pipeline,