I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer too. But even I have to admit some growth stories are bogus, hence this regular series.

Next up: OmniVision Technologies (Nasdaq: OVTI). Is this supplier of camera chips for smartphones the real thing? Let's get right to the numbers.

Foolish facts

Metric

OmniVision Technologies

CAPS stars (out of 5) ****
Total ratings 638
Percent bulls 94.5%
Percent bears 5.5%
Bullish pitches 107 out of 110
Highest rated peers DSP Group, Power Integrations, Kopin Corp.

Data current as of Nov. 8.

Fools like OmniVision for one big reason: The iPhone 4. Tech experts widely credit OmniVision's backside illumination sensor (BSI) chips for helping the handset reach a new standard in smartphone photography.

"Now that the iPhone has raised awareness of this technology and other gadget builders start to follow this enormously influential trendsetter, other chip suppliers will need to crank up their BSI research projects again," wrote Foolish colleague Anders Bylund in September.

Electronic components industry tracker iSuppli agrees. According to the firm's research, 75% of smartphones will use a BSI sensor by 2014, up from 14% today. Shipment volume is expected to rise tenfold over that same period.

OmniVision has been able to meet demand thus far. In its fiscal first quarter, roughly 44 million of its 134 million units shipped were of its higher megapixel (mp) sensors, and of those the BSI 5-mp sensors used in the iPhone 4 was the highest selling product in its category. Clearly, there's an opportunity here.

The elements of growth

Metric

Last 12 Months

2009

2008

Normalized net income growth Not measurable Not measurable Not measurable
Revenue growth 57.4% 18.9% (36.6%)
Gross margin 25.1% 24.1% 23.2%
Receivables growth 93.8% 68.9% (58.3%)
Shares outstanding 53.9 million 50 million 49.5 million

Source: Capital IQ, a division of Standard & Poor's.

While it's difficult to know how much of an earnings impact OmniVision will realize from supplying chips to Apple's (Nasdaq: AAPL) iOS devices, there's plenty to like in this table. Let's review:

  • First and most important, revenue growth is accelerating. That's a good sign and exactly what we expect of a growth story in development.
  • Second and almost as important, the gap between revenue and receivables growth is narrowing. It's still large, sure, but receivables grew 70 points faster than revenue in 2009. Today, the gap is 46 percentage points.
  • Gross margin is also rising, as are returns on capital. Both measures indicate careful expense management.

Competitor and peer checkup

Company

Normalized Net Income Growth (3 yrs.)

Eastman Kodak (NYSE: EK) Not measurable
Micron Technology (NYSE: MU) Not measurable
OmniVision Technologies Not measurable
Panasonic (NYSE: PC) Not measurable
Sony Corp. (NYSE: SNE) Not measurable

Source: Capital IQ. Data current as of Nov. 8.

At first glance, this table would appear to tell us nothing. Not true. What it says is that no single competitor has fully capitalized on the BSI growth opportunity. OmniVision's production lead could hold up for most if not of all the massive build-out period to come.

Grade: Sustainable
To me, OmniVision looks like a Rule Breaker in the making. Not only is this company the top and dog and first mover in BSI smartphone technology, but analysts also have yet to concede there's any sort of massive-growth opportunity here. Wall Street expects earnings to improve just 10% a year over the next five. I'm betting that disconnect won't last, and have rated OmniVision to outperform in my CAPS portfolio.

Now it's your turn to weigh in. Do you like OmniVision Technologies at these levels? Let us know what you think using the comments box below. You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.

Interested in more info on OmniVision Technologies? Add it to your watchlist here by clicking here.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. 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 owns shares of Apple and is also on Twitter as @TheMotleyFool. Its disclosure policy thinks Monty Python is sustainably funny.