An Unspectacular Year for Entropic

This past January, I set out to find the next great Rule Breaker: a company whose products are rewriting the way its respective industry does business. That company is Entropic Communications (Nasdaq: ENTR  ) . After one year, how has the company fared?

Year-to-Date Return (59%)
Market Cap $428 million
Revenue (Trailing 12 Months) $255 million
1-Year Revenue Growth  46%
1-Year Normalized EPS Growth  97%
Cash/Debt  $130 million/$0
CAPS Rating (out of 5)  ***

Sources: Yahoo! Finance, E*Trade, Fool.com. Growth rates are comparing trailing 12 months versus the prior period.

Wait a minute. A company grew revenue by 46%, grew earnings per share by 97%, and it's down almost 60% on the year? What gives?

The company designs MoCA (Multimedia over Coax Alliance) enabled chipsets that many predicted would usher in the wired, connected living room of the future. The problem came when one of their largest customers, Verizon (NYSE: VZ  ) , reported much softer demand for its FiOS service than expected.

With that, investors apparently saw they had misjudged the speed at which the connected living room would arrive. Even though second-quarter revenues were impressive, they still missed expectations, and analysts have been ratcheting down their guidance ever since. After a series of quarters featuring huge growth, the company reported a year-over-year sales drop of 16% last quarter.

Even though the stock currently trades for just six times trailing earnings, that number shoots all the way up to 10 when the price to future earnings is taken into consideration. This is a telltale sign that investors see demand slowing precipitously in the future.

Fellow Fool Harsh Chauhan would argue that the future isn't that bleak for the company. Recently signed partnerships with Intel (Nasdaq: INTC  ) and Zoran (Nasdaq: ZRAN  ) could be promising signs for the future, Harsh argues.

I'll be staying on the sidelines for this one, though. Instead, I'm looking to invest in industries with undeniable growth trends, like mobile connectivity. If you'd like to find out more about the quality companies set to benefit in this industry, I suggest you check out the special free report we recently prepared. It will detail the winners of the iPhone and Android revolution, and it's yours today, absolutely free!

Fool contributor Brian Stoffel owns shares of Intel. You can follow him on Twitter at @TMFStoffel. The Motley Fool owns shares of Intel, and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Intel, and creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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