Impinj May Now Be In An Uptrend With The Future Looking Bright (NASDAQ:PI)

Impinj, Inc. (NASDAQ:PI), a provider of RFID hardware and software solutions, has released its latest earnings report, and the results were much better than expected. In addition, Q4 guidance sees growth continuing unabated, much more than expected.

The stock soared higher in the aftermath of the Q3 report, further strengthening the foundation for what could become a sustained uptrend. However, the stock is likely due for a pullback in the short term for a couple of reasons. Why will be covered next.

Why the market loved the Q3 report from PI

PI easily beat estimates for the top and the bottom line in particular. Q3 revenue increased by 51% YoY to $68.3M, a new record high. PI still recorded a GAAP loss of $2.2M or $0.09 per share, but non-GAAP net income reached $9.3M or $0.34 per share, which is twice as much as the $0.17 expected. Adjusted EBITDA was a record $9.8M in Q3 FY2022, up from minus $0.36M in Q3 FY2021.

Note that the non-GAAP numbers do not account for $10M in stock-based compensation expense, but the GAAP numbers do. Furthermore, share dilution continues to take place. The weighted-average number of shares outstanding reached 25.7M in terms of GAAP, up from 24.3M a year ago, and 27.7M in terms of non-GAAP, up from 24.3M a year ago. PI ended the quarter with cash, cash equivalents and investments of $201.1M. The table below shows the numbers for Q3 FY2022.

(GAAP)	Q3 FY2022	Q2 FY2022	Q3 FY2021	QoQ	YoY
Revenue	$68.270M	$59.796M	$45.193M	14.17%	51.06%
Gross margin	54.8%	52.7%	50.9%	210bps	390bps
Income (loss) from operations	($1.744M)	($8.476M)	(12.372M)	–	–
Net income (loss)	($2.199M)	($11.523M)	($12.924M)	–	–
EPS	($0.09)	($0.45)	($0.53)	–	–
(Non-GAAP)
Gross margin	56.9%	54.7%	53.3%	220bps	360bps
Adjusted EBITDA	$9.796M	$3.848M	($0.357M)	154.57%	–
Net income	$9.341M	$3.033M	($0.909M)	207.98%	–
EPS	$0.34	$0.11	($0.04)	209.09%	–

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Source: PI Form 8-K

PI also sailed past estimates for Q4 FY2022. Consensus estimates were for revenue of $67.2M and non-GAAP EPS of $0.18, but Q4 FY2022 guidance from PI calls for revenue of $71.5-73.5M, an increase of 37.8% YoY at the midpoint. The forecast expects non-GAAP EPS of $0.32-0.37, an increase of 115.6% YoY at the midpoint. PI still expects to finish with a GAAP loss, but at $0.06-0.12 a share, it is a lot better than the loss of $0.81 a year ago.

(GAAP)	Q4 FY2022 (guidance)	Q4 FY2021	YoY (midpoint)
Revenue	$71.5-73.5M	$52.6M	37.83%
Net income (loss)	($1.6-3.1M)	($20.0M)	–
EPS	($0.06-0.12)	($0.81)	–
Average # shares	25.9-26.1M	24.6M	5.69%
(Non-GAAP)
Adjusted EBITDA	$9.8-11.3M	$5.3M	99.06%
Net income (loss)	$9.0-10.5M	$4.3M	126.74%
EPS	$0.32-0.37	$0.16	115.63%
Average # shares	27.9-28.1M	25.9M	10.29%

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Guidance did not extend beyond Q4, but management did add some color as to next year. PI is raising its outlook with demand expected to remain ahead of supply well into 2023, which is an upgrade compared to the previous outlook. From the Q3 earnings call:

“Last quarter I said that, based on my conversations with Impinj’s leading end users and go-to-market partners, I expected demand to remain strong at least through second half 2022. Recent conversations with those end users and partners suggest that that strength extends well into 2023, driven by new deployments and expansion at existing deployments. Highlighting that strong demand, we entered the fourth quarter with record backlog.

Starting with endpoint IC supply, the pace and lead times of wafer upsides from our foundry partner continue to gradually improve. Despite that improvement, third quarter demand still exceeded supply by more than 50% for the sixth consecutive quarter, and we expect demand to exceed supply well into 2023.”

A transcript of the Q3 FY2022 earnings call can be found here.

The stock has taken off

The market loved what PI had to say, and the stock was rewarded with an almost 30% gain in value the day after the latest report. This jump helped push the stock into positive territory with the stock up 29% YTD in 2022. The year 2022 has been a tough year for most stocks, but PI has set itself apart by being up for the year, which is an impressive achievement considering the difficult circumstances. The chart below shows how the stock has recovered from earlier losses.

Note how the stock was losing ground with a sequence of lower highs prior to the Q3 report, which can be connected to form a descending trendline. The stock appeared to be having trouble with the resistance imposed by this trendline, forcing the stock lower, but the latest report was able to power the stock through the resistance on the way to new highs for the year.

Furthermore, the stock has formed what looks like an ascending channel, a bullish chart pattern. The channel is bounded by an upper trendline and a lower trendline line, which are both ascending and running parallel to one another. The stock is moving between the extremes of the channel and since the channel is rising, so, too, is the stock. The presence of an ascending channel makes it easier to guess the overall direction of the stock and, in this case, it is up.

However, it’s worth noting that the stock is currently bumping up against the upper boundary of the channel. Note how the stock has been having trouble moving above the upper trendline. The stock has tried for several days, but no cigar thus far. The stock did manage to get above the trendline on Monday with an intraday high of $119.69, which is the 52-week high, only for the stock to reverse course to close the day in the red below the trendline at $114.63.

The price action in recent days suggests the stock has encountered resistance, which is blocking the way higher, at least for now. The stock is also overbought on several indicators like RSI after the recent move higher. This suggests that the stock is probably due for a pullback in the short term. Longs may want to consider locking in profits at this point by taking some chips off the table.

PI is not without drawbacks

PI has a lot going for it at the moment, but if there’s one thing that could cause people to take a step back, then it likely involves valuations. PI has lots of potential, but the asking price to get in on that potential is steep. For instance, a number of multiples like EV/EBITDA are well into the triple digits, which some people might find to be a dealbreaker.

Keep in mind that PI is not profitable on a GAAP basis, which is why it does not have a multiple for several commonly used metrics. Some may also argue that PI is not really profitable even on a non-GAAP basis since the latter does not take into account stock compensation expense. The table below shows some of the multiples PI trades at.

	PI
Market cap	$3.01B
Enterprise value	$3.13B
Revenue (“ttm”)	$233.8M
EBITDA	($20.9M)
Trailing P/E (GAAP)	N/A
Forward P/E (GAAP)	N/A
PEG ratio	N/A
Trailing P/E (non-GAAP)	163.76
Forward P/E (non-GAAP)	133.29
P/S	12.35
Forward P/B	32.02
EV/sales	13.37
Trailing EV/EBITDA	N/A
Forward EV/EBITDA	111.95

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Source: SeekingAlpha

Investor takeaways

PI seems to be living up to the potential long envisioned for a company competing in the market for RFID. Growth has taken off in recent quarters and PI stepped it up once again in its latest report. Both the Q3 numbers and Q4 guidance beat expectations by a mile. In fact, PI has been sailing past expectations for some time. For instance, PI was expected to earn a combined $0.16 in the past four quarters, but non-GAAP EPS was actually $0.70 during this period.

The most optimistic projections expect PI to finish with non-GAAP EPS of at most $0.92 in FY2022 and PI has a shot at beating that number if it manages to beat expectations like it has in recent quarters. In comparison, PI ended FY2021 with non-GAAP EPS of $0.25. PI is still in the red in terms of GAAP, but even on that front PI has made huge progress with losses much smaller than before.

The RFID market still has tremendous potential due to all the possible applications. Demand still exceeds supply by more than 50% and with the backlog at a record high, any slowdown in growth is nowhere in sight. Furthermore, there is room for PI to add to growth. For instance, Impinj Authenticity has the potential to grow revenue from services, which could be a welcome addition since it is recurring in nature and likely to come with high margins.

PI looks to be in a favorable position with regards to the charts, which suggests higher prices are in the pipeline with the trend pointing up. While the stock is likely due for a pullback in the short term due to being overbought and up against resistance, the chart patterns suggest that as long as the ascending channel remains intact, the stock is heading higher. With all the above in mind, it would not be surprising if someone were to go all in on PI.

It’s tempting to be long PI with so much in its favor, but I remain neutral on PI as stated in a previous article. As mentioned in the article, the decision to go for PI comes down to whether one is willing to pay a high multiple for a stock like PI. PI has made huge gains in a number of areas, but not when it comes to valuations. PI still trades at what some would label as lofty valuations. This could be a hurdle too high to cross for some.

At the same time, just because multiples are high does not mean they cannot go even higher. In the end, PI has the fundamentals and the charts in its corner. Some people will probably have no issue with very high multiples, in which case long PI looks warranted. Others, on the other hand, are likely to feel differently.