Sequans Shares Surged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of French chip maker Sequans Communications (Nasdaq: SQNS  ) were heading for the stratosphere today, nearly doubling in intraday trading after the company announced that China's Ministry of Industry and Information Technology approved the company's chips.

So what: China is a seriously big market for everything. That "everything" includes mobile communications, which necessarily means that it's a huge market for the chips that go into cell phones and other mobile devices. So it shouldn't be all that surprising that investors are excited to hear that Sequans' technology has been approved by the MIIT for use in China's LTE networks. The company publicly tested its products with Alcatel-Lucent (NYSE: ALU  ) and Huawei, but it said it has also privately been working with a number of other potential customers.

Now what: This is a big announcement for Sequans for sure, but it doesn't change the fact that investors are making a big bet on a very profitable future for the company. Currently, the company is profitable on an operating basis, but trades at a hefty multiple of those operating profits (particularly after today's action). Of course, for seasoned growth investors this is nothing new -- the name of the game is finding promising companies early and riding the growth wave. But that growth is never assured, so while today's news is a good step in the right direction, the question still remains: Will Sequans deliver?

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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