We haven’t looked at a Louis Navellier pitch for a little while, and this one caught the eye of some intrepid Gumshoe readers — it is, like virtually every Louis Navellier pitch, a promise that his favorite growth stock will double this year… though he goes even further in announcing that “long term, a $1,000 investment here could grow well into six figures.”
That’s what most of us dream about when we’re summoning Plutus, Mammon or Gulveig in our sleep: the investment that grows 100 fold. Has Louis found one of those for us here?
Well, we obviously can’t answer that — not without a time machine — but we can, at the very least, toss his marketing clues into the ol’ Thinkolator and identify the stock for you. Ready?
Here’s the intro:
“Today, this breakthrough technology that turns 50-year old coaxial cable into a 1-gigabit home networking solution will soon join the long history of advancing communication technologies that you will one day take for granted
“Mark my words—if you can get in now before Wall Street catches wind, you could reap almost obscene profits as cable companies worldwide upgrade to this company’s lightening fast, 1-gigabit technology.”
So this is something about speeding up data transmission within a network without tearing out all your coaxial cable (like your TV cable) and replacing it with fiber optics. I have no idea what the size of the demand for that is — from what I understand, he’s teasing that this technology makes the local network (like your house) faster at distributing data within the network, not a higher-bandwidth connection to the internet “grid”. Let’s see if we get any more detailed…
“The savings to the cable companies could be in the billions of dollars, as they will be able to use existing coax cable to deliver next generation high-speed, high definition video content along with multi-room DVR and superior online gaming—all without hiccups, slowdowns, or buffering that comes from having multiple devices connected to the internet….
“They will be able to use existing cable lines to stream movies, watch TV, play games, and surf the Internet from dozens of connected devices without glitches, data bottlenecks, or interference from wired and wireless routers.”
OK, so that’s the basic spiel — and I’m not sure I get what the actual breakthrough is, so let’s move on. What about the company that’s making this possible, what clues do we get there?
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“… the company’s sales have jumped 192% year-over-year… why the stock price has climbed 78% over the past 12 months while the market is down 10%… and why analysts expect the company to deliver 344% earnings growth in the coming quarter.”
Ah, now that I understand. Sales growth good. Earnings growth good.
And it’s probably a small stock, this is an ad for Emerging Growth, which is generally on the “small cap” end of things and tends to look for more “breakthrough” type stocks (it’s also quite pricey, roughly $1,000/year). Here’s how Navellier describes his “mission” with this letter:
“my mission… to find companies—small, undiscovered gems—that are turning whole industries upside down. Companies that have A BETTER IDEA, a BETTER technology, or a BETTER business model…that fly under the radar and are at the beginning of their greatest growth years.”
So why does he say that “the sky is the limit” For this particular stock? More from the ad:
- Digital home entertainment is one of the fastest growing sectors on the planet.
- This company’s software turns 50-year old coaxial cable into a robust, high-speed, whole-home entertainment network.
“As a result, the cable companies—nor consumers—would have to replace millions of miles of existing cable for faster fiber optical lines capable of delivering seamless delivery of PC-to-TV streaming content.
“That’s because this breakthrough technology brings you lightening fast speeds through existing coaxial cables.
“In other words, it’s like turning a Model T into a Ferrari—only digitally, per se.”
I’m still pretty sure that I don’t get it, but I’m closer to ID’ing the company for you. More clues:
“… big institutional investors like BlackRock, Royce & Associates, and Soros Fund management have already scooped up millions of shares of our company’s stock.”
Any other clues? Not really, though we do get a hint as to the stock price when he calls it a “$15 Tech Doubler” … so what does the Thinkolator say?
This is, dear friends, MaxLinear (MXL).
And no, I hadn’t ever heard of them before… but we have been teased about this same technology before, because MaxLinear’s MoCA products, which is what is being teased here as enabling the next-generation 1gb home network, was acquired when they bought a little firm called Entropic last year. Entropic was teased by Chris Versace back in 2013, for much the same reasons that Navellier is pitching MaxLinear today.
For the record, Versace pitched Entropic as a takeover target — and it was taken over, but it didn’t generate much in the way of profits if you bought at $4+ when he was teasing it. Entropic shareholders got $1.20 in cash plus 0.22 shares of MXL, which was unexciting when MXL was around $8 but isn’t that much more exciting with MXL at $14 (if you bought when Versace was teasing it in the Summer of 2013 it would have cost you $4.40, today that same position would be worth $4.28).
But will MaxLinear turn this MoCA standard, and their asserted leadership as a pioneer of the standard, into profits? Analysts do see 344% growth next quarter, but they expect it to be a one-time “pop” in earnings for the quarter, their expectation for the year is 11% earnings growth, followed by another 20% jump in earnings in 2017. That means the stock is trading at a 2016 PE of about 10, which is quite low, and a 2017 PE of 8… but that 2017 number is based on just two guesses by analysts, so don’t get too excited.
So if they can really grow from here, that’s certainly a lovely valuation. Growth has come in part because of this MoCA business from the Entropic acquisition, though they have a variety of other product lines in satellite and optical communications as well. This is what they said on their conference call last week:
“Moving on to MoCA, which is our whole home broadband data and video connectivity solution, the noted revenue strength in MoCA and the fast evolving positive customer and operator dialogue has significantly elevated MaxLinear’s strategic position and value in the broadband connected home operator ecosystem.
“In January, we announced the MxL3705, the world’s first fully integrated MoCA 2.0 system solution that enables greater than gigabit per second data rates. This announcement was significant for a number of reasons. Broadband operators who were investing in platforms capable of delivering multi-gigabits per second data speeds into the home are actively seeking in-home, high-quality-of-service networking solutions to eliminate the subscriber bandwidth bottlenecks inside the home. The MxL3705 is the first MoCA device in the world capable of gigabit-plus networking speeds, and addresses these in-home bandwidth bottlenecks.”
They’re clearly excited about the MoCA business, and it’s providing a lot of their growth in the last quarter and their anticipated growth this year, but it also doesn’t seem clear to me, from skimming their quarterly results, how confident they are that their MoCA business and their new satellite products will grow fast enough to make up for falling revenue in their older video “system on a chip” products for cable boxes and similar products where sales are stalling or competition is cutting margins. You can check out their conference call here and perhaps get a sense of that for yourself.
So yes, it’s an “emerging” growth stock, and customers seem excited about their home networking equipment, and I have no idea whether they’ll really get all the big cable and satellite operators to be large customers and keep growth going into the future — kind of seems like other folks aren’t sure, either. Either that or they just haven’t noticed this small cap stock, because if the future is at all predictable and the analysts are right (a big “if”), then the stock is clearly way too cheap at about 10X expected earnings.
Which means, dear friends, that this is where I leave you — what do you think? Ready for big growth from MXL, or are you worried about competition or uptake of their new products? You probably know more about it than I do if you’ve gotten this far, so please share your thoughts with a comment below. Thanks!