Uni-Pixel: Convincing The Kibitzers A Short Squeeze Is On The Horizon

Jun.10.13 | About: Uni-Pixel, Inc. (UNXL)

Over the last few months Uni-Pixel (NASDAQ:UNXL) has unfolded as quite an exciting story for market speculators on both sides of the trade. The stock saw a dramatic rise in price of almost 800% from it's $5.27 lows in October 2012 to as high as $41.42 mid-April as traders struggled to price UniBoss' potential. Just as no hero is without an antagonist, a story like this also comes with its skeptics, which according to Nasdaq.com as of 5/15 are about 4,180,612 strong, representing a whopper of a 43.2% short float.

As the old adage goes: 'If you're losing a tug of war get more people'. It appears shorts continued to pile on en masse during the latter part of May releasing a barrage of negative articles that sent shares reeling from $37.44 to $14.31 in 11 trading sessions, an almost 62% haircut. As shareholders tried to wrap their heads around the sharp move, they were also tasked with what to make of the outlandish claims laid out in the recent article "A Picture Is Worth A Thousand Words," which drew its fair share of attention & criticism. While some take issue with the author's credibility in citing numerous unnamed and highly questionable sources, 'engineers' and claimed expert network contacts, I take issue with a few more glaring errors.

To start, the author casually writes "We also took close-up photographs of the product when the management team wasn't looking." - I don't know about you, but if I took pictures of say an iSomething 5s when management wasn't looking, posted them online along with an article saying the product is a total flop and doomed to fail, I have a feeling my mailbox would be a little more full the next day with documents containing the words "civil action" and "plaintiff". And while the author's passion for photography is admirable, it remains difficult to establish the credibility of these pictures, and I defer to Cowen & Co's Robert Stone (comments highlighted in Barron's article):

Pictures Of Uncertain Origin - A photo (in a Seeking Alpha post last week) shows visible lines on a white paper background. The pinkish color suggests this is a bare copper sample circa late 2011 (UNXL was then plating 20 micron lines, not yet passivated with Nickel). Another photo with a sensor backlit by an iPhone display shows a moiré interference pattern, not mesh grid lines. Any touch sensor must be designed specifically for a particular display to avoid this.

But wait, what about the broken lines? The author claims to have a photo of Uni-Pixel's 'newest' demo unit showing breaks in lines which he attributes as "dead spots" caused by defects in the UniBoss grid. If a picture is worth a thousand words, a video must be worth a million, since the video demos recently uploaded on Uni-Pixel's website stand right in the face of some of those accusations. The touch sensor demos show fast scroll & response, almost no latency, and no dead spots or issues whatsoever even with 5 finger multi-touch! The bottom line is, we shouldn't be too hasty to put this technology on the chopping block, it continues to remain far superior to the standard ITO-based touch tech out there. As Reed Killion, President & CEO puts it during the Q1 cc (transcript here):

These advantages include higher touch response and sensitivity, superior touch distinction, better durability, lower power requirements and the ability to scale to many sizes and form factors. As an additive manufacturing process UniBoss is more efficient and sustainable promising lower production cost versus standard ITO-based touch technology and other subtractive ITO replacement technologies. It does this by way of lower materials costs, fewer steps in the manufacturing process and a more simplified supply chain.

While I believe this will continue to remain a speculative play until we have Uni-Pixel parts show up in finished product (slated for Q4), we also can't ignore the facts. It has 15.7m cash on the books, raised another 41.2m from equity financing recently, a relatively small float of 9m, a high short interest, and a serious campaign of misdirection by some short sellers. Not to mention, given the recent sharp decline it seems highly likely when the updated short interest figures are released a week from now, we could easily be looking at 60-70% of the float short. The above ingredients can generally be found behind major short squeezes such as moves made by SolarCity (NASDAQ:SCTY), Tesla (NASDAQ:TSLA), as well as Uni-Pixel's initial multi-bagger move.

Lastly, we saw a few filings in the last few days, BOA, Fidelity, Wellington reduced positions. While that doesn't exactly bode as a vote of confidence for the stock, keep in mind that this stock was quite frothy in the high 30's, despite the fact they got financing off in that range. These filings are just lagging indicator of why the stock sold off so hard, and not necessarily indicative that those same firms aren't interested in getting back in.

Looking at this objectively, I think as the market separates fact from fiction it will determine that too much premium has been priced out given the potential of UniBoss.

To qualify this move technically, I look to the daily chart as it crossed a multi-day downtrend, signifying a turn in direction, and a squeeze trigger of $19.29 (currently the 200day EMA) to target the $22-$25 range within the next few weeks where it will find some resistance as well as a test of the 50day EMA. You can also finance some of the long by writing some out of the money calls against it in order to capture the higher premium as a result of the recent volatility.

Disclosure: I am long UNXL. I may Increase or decrease my position in the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.