On April 26th, radio frequency identification (RFID) solutions provider Impinj, Inc. (NASDAQ: PI) looked like it could do no wrong. Its share price and sentiment around its growth prospects were near all-time highs. The following day, things took a drastic turn for the worse.
Seattle-based Impinj plunged as much as 40% in heavy volume after reporting disappointing first-quarter results. More than a few shareholders translated this to mean that the company has reached peak growth and will only struggle in the challenging economy ahead. Wall Street doesn’t agree.
Since the release, sell-side research groups have come in droves to the small-cap tech stock’s defense. A half dozen analysts reiterated their bullish positions last week, ‘identifying’ the selloff as an attractive buy opportunity. The support was especially telling because the Street often kicks a dead horse when it's down. Not in this case.
Why Did Impinj Stock Fall?
Impinj announced that first-quarter revenue increased 62% to a record $85.9 million and reported a narrower net loss of $0.17 per share. On an adjusted basis, earnings per share (EPS) was $0.30, which marked a 233% improvement from the prior year period.
While the results were impressive, the market was hoping for more. The consensus forecast for adjusted EPS was $0.33 — so this amounted to a 9% miss. And despite the sharp year-over-year improvement in profitability, glass-half-empty investors zeroed in on a 340 basis point decline in the gross margin to 50.7%.
Management provided second-quarter guidance that the market also found to be underwhelming. It is expecting revenue of $85.5 million at the midpoint and non-GAAP EPS of $0.28 to $0.33. Since this bottom line outlook is roughly in-line with Q1, some investors decided it was time to move on. But did they overreact?
What Do Analysts Think About Impinj?
Analyst commentary around Impinj remains overwhelmingly positive. Lake Street called the Q1 results “solid” but noted that Q2 guidance was softer than anticipated, mainly because major Impinj deployments have been pushed into Q3. Still, the analyst referred to the stock as “the best way to play the RFID market” and considered its return to the $80’s a favorable entry point for growth investors.
Like Lake Street, several other analysts lowered their price targets but refused to abandon their buy ratings. This suggests that Impinj’s strong fundamentals and secular growth story are still intact.
The company’s semiconductor chips and readers are used in the food & beverage, pharmaceutical, retail and other industries to get real-time information about inventories. They help customers quickly analyze and optimize their operations by connecting everyday things like clothes, car parts and shipments to the Internet.
It is the long-term growth opportunities associated with this technology that has analysts sticking with their bullish opinions. All seven analysts that cover the stock have buy ratings, and the group’s revised target of $134 implies more than 50% upside over the next 12 months.
Is Impinj Stock Overvalued…or Oversold?
The latest consensus estimate of 2023 adjusted EPS for Impinj is $1.45. This means the stock is trading around 60x this year’s earnings, which is well above the average semiconductor stock. But Impinj is no ordinary chip maker.
It is an RFID tech pioneer that has carved out a leading position in the logistics part of an Internet of Things (IoT) market that is expected to experience explosive growth this decade. According to a recent report, the broader 5G IoT market will grow at a 47.6% rate through 2030 and reach $17.7 billion, led by self-driving cars, video surveillance and other emerging trends.
Impinj’s place in this faster-growing chip market makes it worthy of a premium valuation. A P/E ratio of 60x may seem lofty on the surface but isn’t much of a stretch for a company that just announced 62% sales growth and is on pace for 51% EPS growth this year.
To technical analysts, the drop was a long time coming. On April 6th, a diamond top pattern popped up on the daily chart, pointing to an impending reversal.
What are the technicals telling us now? Impinj is well oversold. On the daily chart, the stock is hovering well outside the lower Bollinger Band. The Relative Strength Indicator (RSI) is below 20, a place it hasn’t been since April 2022 — when it eventually tripled to almost $150.
With a healthy level of buying occurring on Friday, investors seem to be taking notice of Wall Street’s backing. There’s a good chance $80 becomes a new support level for Impinj. Unfazed by the recent backslide, analysts have identified the stock as a top IoT pure play for good reason.
