Adesto (NASDAQ: IOTS) doesn’t look like much on the surface – flat revenues, consistent losses in a heavily commoditized business – computer memory. So it’s not surprising that they just reduced their proposed price to $7/share with their tier-2 underwriting team of Needham, Oppy and Roth. It’ll be a very small capitalization company at the new price – just over $100M.

But some further work is justified because underneath flat revenue growth there has been very rapid growth from new products with a steep drop in revenue from legacy products. At this point the revenue is almost all the new stuff. That means revenue growth will accelerate dramatically over the next few quarters. The ramp in design wins from 32 in 2013 to 65 in 2014 to what will be between 100 and 150 in 2015 makes the acceleration in revenue growth a given.

There also is a fundamental need for faster, much lower power electronics for embedded, wearable and mobile devices. Adesto has a technology advantage that allows them to serve this growing niche better than any of the larger competition. (see technology discussion below)

INVNUnfortunately Adesto didn’t make their roadshow presentation public which is a bad decision and amplifies the limited reach a small tier-2 group of underwriters provides. So building a decent IV model for them isn’t easy due to the timing between design wins and revenue, price and volume trends and not even knowing what the target model is.

The memory business is a generally known quantity though so based on comparable companies and results we were able to put together a fairly solid model. The main parts we will have to watch for is how rapidly they can grow the top line, can gross margins get back to 45% and how much will they need to invest in R&D and S&M to support the growth.

Our IV suggests a near-term objective of $9 which would expand dramatically in 2017 if the company executes well enough for long-term numbers to be believable.