Thesis:NVTL is one of the best risk/rewards in the market by my calculations. I estimate upside/downside potential of about 520%/(15%). NVTL is in the first inning of what will likely be the strongest demand cycle for the company's products in its history, which has the potential to drive up revenue and EPS tremendously. NVTL's products are directly exposed to the 4G wireless roll-out and tablet growth. Despite the positive prospects for NVTL, the stock is trading near its low, giving investors the opportunity to make outsized returns. I believe this is a very rare situation in which it seems that a company (NVTL) has just hit its fundamental inflection, but the stock has not reacted yet. I think this inefficiency has been caused by a number of factors but will not last for long.     

Brief History and Outlook: NVTL designs and sells products that enable devices (such as computers, tablets, ereaders...) to connect to the internet wirelessly. The product which

the company is probably best know for is the MIFI mobile hotspot device, which is credit card sized, and enables users to connect up to five devices to the internet anywhere there is coverage. The company is also among the largest providers of devices (such as embedded and USB connected) that enable multiple devices to connect to the internet. NVTL partners with network providers (such as Verizon, Sprint, Virgin Mobile) to bundle an internet access plan with the sale of one of its devices. The company also partners with OEM provider (like Dell & others) to embed their devices within the OEM's products. NVTL is known as an innovator in the industry as evidenced by the fact that they invented the first mass market mobile hotspot device(the MIFI).            

The company's revenues and margins have historically increased tremendously when new wireless technologies are introduced, due to the increase in demand, the superiority of their products, and first mover advantage. During the last 3G cycle NVTL's revenues and EPS peaked in 2007 at $430 mil and $1.40, with the stock climbing to near $30 (vs $4.85 today). Since that time the company's revenues and EPS have declined meaningfully as margins and demand slowed in front of the 4G wireless rollout. The company has experienced a number of false starts which has caused investor exhaustion. Now that the 4G rollout seems to have finally arrived this could meaningfully drive the stocks performance. NVTL is guiding 2Q revenues of $112-122 mil, up 89% and 62% sequentially and annually. NVTL is guiding EPS for 2Q of ($0.10)-$0.00. Given the increased size of the market for wireless devices (tablets, ereaders, embedded computer devices....) and NVTL operating leverage, the company has the potential to grow revenues and EPS significantly from this base.

Valuation: NVTL has had negative EPS of late but is currently valued at an P/BV and EV/sales of about .95x & 0.23x. The company also has a net cash balance of about $58 mil or $1.81 per shard, limiting downside. I estimate that as NVTL moves through the 4G cycle their EPS and revenues will grow significantly as occurred during the last cycle. I estimate the company has the possibility of reporting peak EPS of anywhere between $0.70-$3 during this cycle. I arrive at these figures by assuming a matrixof potential revenues and margins associated with the 4G rollout. If one assumes that company could earn $3 in peak EPS, and the market gives the company a 10x P/E multiple, NVTL could move up to $30, which is consistent with the stock's performance during the last cycle. However, EPS and revenues are very sensitive to demand and margins which are difficult to forecast for this company, so there is a broad range of potential results. The one thing I feel very strongly about is that if this stock is going to work it should happen soon, and the move could be huge, especially given the stocks recent performance and high short interest.

Risks:

1) Competition

2) Margins

3) Duration and size of the 4G cycle

4) What happens next cycle

1) NVTL is expected to present at the upcoming Barclays conf on 5/25

2) Rollout of 4G devices leading to revenue and EPS growth

3) High short interest could result in a shrot sqz

4) Recent insider buying

5) Potential for the company to be acquired

6) Growth in wireless devices such as tablets