Is Parametric Sound Poised For A Spike?

| About: Turtle Beach (HEAR)

Parametric Sound Corp (PAMT) came to my attention a few days ago, when I read about it in this post from Timothy Sykes ("This Will Be The Best Stock Of March 2013"). In that post, it is highlighted that PAMT may be working on a major deal with McDonald's (NYSE:MCD), and already seems to be present in at least one McDonald's store (this was, in fact, announced on twitter by @markflowchatter on February 21st). An analyst known as MDB Capital had also noted in their commentary on PAMT that not only was PAMT technology being utilized in a McDonald's location, but that the company also had at least 3 deals in place to bring its HyperSound System (HSS) technology to market in the consumer electronics space.

At this stage, no press release has been released announcing a deal between PAMT and McDonald's (I would guess that at this stage McDonald's is merely testing PAMT's technology). But this is not the first time PAMT has had a business relationship with a multi-billion dollar company. Last year, PAMT announced a strategic partnership with Fujitsu (OTCPK:FJTSY), and a distribution agreement with Ingram Micro (NYSE:IM). In 2012 PAMT also sold to various smaller companies such as Build-A-Bear Workship (BWW).

Most excitingly, PAMT is currently valued at less than $100 million, and it looks like there's now a reasonable chance that a major deal with a fortune 500 company (McDonald's or not) will be announced in March. If that were to happen, given PAMT's low market cap, we could see PAMT spike significantly. All it would take is one major deal and one press release. It also appeals to me that this stock is still mostly 'under the radar', and despite all the signs, relatively few people are discussing the possibility of PAMT announcing a major deal in the near future.

Why are McDonald's, Fujitsu and Ingram Micro interested in PAMT's technology?

On their website, PAMT claims that their HSS technology gives the ability to "put sound where you want it and nowhere else." Sound can be directed at one person in a room, and not at another person. For example, a television may be able to direct its sound at a hearing-impaired person, while another person in the same room hears the sound at a lower volume. PAMT lists numerous applications for this technology. It is surprising that such a technology could work (at this stage it's still very much in its infancy), but PAMT does have numerous patents, and a proven history which very much suggests that its technology is for real.

PAMT financials and earnings

PAMT's latest 10Q states that at the end of 2012, it had $4,650,564 in cash, and total assets of $6,593,357 (total current liabilities were just $337,829). Total revenues for the three months ended December 31st 2012 were just $108,674, with a net loss of $ 1,252,120. Given their lack of profitability, PAMT could certainly still be considered a "development stage" company. They have a reasonable amount of cash at hand to last longer, and what I believe matters most at this stage is whether or not they are able to sign some larger deals as their HSS technology gains wider recognition.

What are the long-term prospects for PAMT?

Already it has been speculated that PAMT could do for sound what IMAX Corporation (NYSE:IMAX) has done for motion picture technologies. Of course, at this stage PAMT has am enormous amount of work to do to reach anywhere near the level of success that IMAX has, and it must be understood that with a stock like PAMT, there is a far higher element of uncertainty involved. But the potential for some big deals to be announced in the near future is certainly there, and thus I believe that holding PAMT currently represents a good risk/reward scenario.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PAMT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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