Impinj Stock: One Step Forward And One Step Backward (NASDAQ:PI)

Impinj (PI) gave, only to take it back. That’s pretty much what the stock has done in recent months. The stock soared higher in the fourth quarter of 2021, only to lose it all in 2022. The stock is a third off its highs, which raises the question whether long PI is worth considering with the stock seemingly on sale. While some may argue that long PI has merits, others could decide the time to go long PI has yet to come. Why will be covered next.

Why PI reversed course after a powerful rally

It wasn’t that long ago that PI was riding high. The stock ended 2021 up 112%, but the stock was down for the year in July. In other words, all the gains came in the second half of 2021, especially after the release of the Q3 report in late October. The stock gained 59% after the Q3 report to end the year strong after a relatively weak first half.

However, the stock has lost about a third of its value in 2022, being down 32% YTD. The tech sector has struggled, so it’s not surprising to see PI take some hits. Still, the stock held up relatively well until the release of the Q4 report. In fact, the stock recovered after an early drop in 2022. The stock was actually in positive territory heading into the Q4 report, being up 1.2% for the year.

But things changed once the Q4 report got out. The stock fell 21% the day after and it has continued to slide since then. PI has gone full circle with the Q4 report, having given back almost everything it gained after the Q3 report. The Q3 report caused the stock to jump higher and the Q4 report caused the stock to fall back to earth. The chart below shows the recent price action.

Note the trendline connecting a series of lower lows in the chart. PI looks to be in a downtrend with the stock progressively moving lower. The good news is that the trendline should offer some support, which means the stock could be due for a short-term bounce. The bad news is that the trendline is sloping downwards at a fairly steep angle, which means any relief will likely be temporary. The trend appears to be down.

Why the market gave the Q4 FY2021 report a thumbs down

The market obviously did not like the latest earnings report, in contrast to the one that preceded it. While the Q4 report contained a number of positives, they were more than offset by the negatives. A closer look at the Q4 report shows why. For instance, Q4 FY2021 revenue increased by 44.2% YoY to a record $52.6M, exceeding the original guidance of $46-48M and the updated one of $52M.

Better-than-expected guidance was one of the main reasons why the stock soared higher after the Q3 report, yet PI still managed to beat the numbers. PI got out of the red with adjusted EBITDA and non-GAAP EPS turning black at $5.9M and $0.16 respectively. The latter blew past the top end of Q3 guidance by as much as $0.14.

PI did finish with a GAAP net loss of $20M or $0.81 per share, but this was due to a conversion expense of $11.3M related to convertible notes. The GAAP loss would have been much less otherwise. Note, however, that the GAAP number takes into account $11.5M in stock-based compensation expense, but the non-GAAP and adjusted EBITDA numbers do not.

Non-GAAP gross margin rose to 58.2% thanks mostly to a better product mix, but note that the sale of fully reserved items added 130 basis points, something that will not be repeated in the coming quarters. Gross margin is expected to come down as a result. Free cash flow was negative $6M in Q4. The table below shows the numbers for Q4 FY2021.

(GAAP)	Q4 FY2021	Q3 FY2021	Q4 FY2020	QoQ	YoY
Revenue	$52.574M	$45.193M	$36.448M	16.33%	44.24%
Gross margin	55.5%	50.9%	47.8%	460bps	770bps
Income (loss) from operations	($7.688M)	($12.372M)	(14.386M)	–	–
Net income (loss)	($20.014M)	($12.924M)	($15.717M)	–	–
EPS	($0.81)	($0.53)	($0.68)	–	–
(Non-GAAP)
Gross margin	58.2%	53.3%	50.4%	490bps	780bps
Adjusted EBITDA	$5.288M	($0.357M)	($3.110M)	–	–
Net income	$4.295M	($0.909M)	($3.512M)	–	–
EPS	$0.16	($0.04)	($0.15)	–	–

Source: PI Form 8-K

If the Q4 numbers are available, then so too are the numbers for all of FY2021. FY2021 revenue increased by 37% YoY to $190.3M. Adjusted EBITDA was $9.1M and non-GAAP EPS was $0.25, both better than a year ago. PI still ended up with a GAAP loss of $51.3M or $2.12 per share, but the loss was smaller than before. Free cash flow was negative $9.8M.

PI achieved a number of milestones in FY2021. For instance, PI delivered its 60 billionth endpoint IC, even though endpoint IC demand exceeded shipments by more than 50% in Q4. Bookings are at a record level, as is the backlog. Interest in RAIN RFID continues to rise with a number of prominent names backing its adoption. For example, UPS (UPS) has decided to adopt RFID tags.

(GAAP)	FY2021	FY2020	YoY
Revenue	$190.283M	$138.923M	36.97%
Gross margin	52.0%	46.9%	510bps
Income (loss) from operations	($37.249M)	($47.071M)	–
Net income (loss)	($51.260M)	($51.923M)	–
EPS	($2.12)	($2.28)	–
(Non-GAAP)
Gross margin	54.2%	49.0%	520bps
Adjusted EBITDA	$9.112M	($11.533M)	–
Net income	$6.434M	($12.819M)	–
EPS	$0.25	($0.56)	–

Source: PI Form 10-K

However, while the Q4 FY2021 numbers were a step in the right direction, the same could not be said of Q1 FY2022 guidance, the opposite of what happened after Q3. Guidance calls for Q1 FY2022 revenue of $50-52M, a decline of 3% QoQ and an increase of 12.8% YoY at the midpoint. While the pace of top-line growth is slower than before, it’s still heading in the right direction.

On the other hand, the bottom line is going in the wrong direction. GAAP EPS, non-GAAP EPS and adjusted EBITDA are all expected to get worse, reversing the progress made in the preceding quarter. The forecast sees a GAAP loss of $0.52-0.58 per share, a non-GAAP loss of $0.02 at the midpoint and adjusted EBITDA of negative $13.1-14.6M, all significantly worse compared to a year ago. The Q4 numbers showed progress, but PI seems to be regressing if guidance is any indication.

(GAAP)	Q1 FY2022 (guidance)	Q1 FY2021	YoY (midpoint)
Revenue	$50.0-52.0M	$45.2M	12.83%
Net income (loss)	($13.1-14.6M)	($9.4M)	–
Average shares	24.90-25.10M	23.7M	5.49%
EPS	($0.52-0.58)	($0.40)	–
(Non-GAAP)
Adjusted EBITDA	($13.1-14.6M)	$0.9M	–
Net income (loss)	($1.1M)-$0.4M	$0.3M	–
Average shares	24.90-25.10M	25.7M	(2.72%)
EPS	($0.05)-$0.01	$0.01	–

It’s worth mentioning that PI is making changes that likely contributed to the decline in expected earnings. Incentive compensation consisted of stock in the last few years, but that’s about to change in Q1 FY2022 with a mix of cash and stock. Spending cash on compensation increases operating expenses, which in turn reduces earnings.

PI is still dealing with supply constraints, which limits its ability to meet demand. This is holding back growth, something expected to continue for the foreseeable future with PI limited in the number of wafers it can source from its foundry partner. From the Q4 earnings call:

“Finally, we expect first and second quarter revenue to be supply constrained, with those constraints likely continuing throughout 2022. From today’s vantage point, demand far outstrips our supply.”

A transcript of the Q4 FY2021 earnings call can be found here.

PI is still an expensive stock

PI has fallen by a third, but it’s still not the bargain some would expect to find after such a big decline. On the contrary, PI could be labeled an expensive stock. The table below shows the multiples PI trades at. PI’s lack of GAAP profits is reflected in the absence of any P/E ratios. PI looks better in terms of non-GAAP and EBITDA, but keep in mind that those metrics do not account for stock compensation expense. If, for instance, stock compensation expense was included, non-GAAP EPS would be in the red and not in the black.

	PI
Market cap	$1.49B
Enterprise value	$1.60B
Revenue (“ttm”)	$190.3M
EBITDA	($30.9M)
Trailing P/E	N/A
Forward P/E	N/A
PEG ratio	N/A
P/S	7.64
P/B	16.79
EV/sales	8.41
Trailing EV/EBITDA	N/A
Forward EV/EBITDA	146.49

Source: Seeking Alpha

PI has improved its balance sheet, but the stock still trades at 16.8 times book value. In comparison, the sector median is 4 and PI’s 5-year average stands at 8. Such a multiple may already be too high for some, but it was even higher not that long ago. The recent decline in the stock helped bring down the multiple.

In addition, there’s reason to doubt if the recent improvement in the balance sheet can be sustained. PI is not cash flow positive as mentioned earlier, which means PI is likely to add more debt as long as that remains the case. Note that PI has already done a lot of borrowing. Long-term debt stood at $378.7M at the end of FY2021, up from $54.6M in FY2020. If PI needs to borrow more, debt will go up even more.

Investor takeaways

FY2021 was a better year for PI than FY2020. The top and the bottom line both improved. PI finished with non-GAAP EPS of $0.25 in FY2021, better than the loss of $0.56 in FY2020. But $0.16 of the $0.25 came in Q4, a strong quarter that is unlikely to be repeated if Q1 guidance is any indication. PI expects to be back in the red in Q1 FY2022.

The Q3 FY2021 report generated a lot of optimism. Not only did the Q3 numbers show progress, but Q4 guidance promised even more. Expectations rose and the stock soared higher. However, the Q4 report has thrown cold water on expectations. The Q4 report suggested consistent profits are far away, causing the stock to give back what it gained after Q3. PI has basically taken a step backwards after taking a step forward.

I am neutral on PI. PI could potentially be a winner as a supplier of RAIN RFID. The market for RFID could be huge and there’s growing interest in using RFID tags by companies. However, that potential is yet to be realized. The most recent earnings report shows this. PI is still not a truly profitable company, depending on how one looks at stock compensation, and it’s not clear when it will be.

It’s true PI needs to invest to keep pace with the competition and it’s true PI is being held back by supply chain constraints, but there’s no denying that PI is not cash flow positive. The health of its balance sheet could deteriorate. Multiples for PI are very high despite the recent decline in the stock. The stock trades at over 16 times book value, which could go higher if PI stays in the red and remains cash flow negative.

A previous article concluded that PI was in need of a correction. That has happened in 2022. However, while the stock is down big, it appears it has not fallen enough. There’s room for more. Just because a stock has dropped its price by a third does not automatically mean people should be rushing out to get it. Multiples are still too high. PI has not shown it can remain profitable despite the potential of RFID. The charts suggest the trend is down. Odds are the stock is going down.