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Uni-Pixel (NASDAQ:UNXL) is a concept stock with a potentially disruptive technology. The company produces, or aims to produce, "Performance Engineered Films" for use in electronic sensors and display applications for consumer and industrial use.

The company's UniBoss technology aims to produce a continuous flow printed electronics manufacturing process that offers high fidelity replication of surface micro structures, advanced micro-optic structures, and conductive elements on thin film. The company is aiming for its touch sensor technology to be used in smartphones, tablets, laptops, computers and industrial and commercial control interfaces.

I have followed Uni-Pixel for a while now, but I have to confess I never mentioned or written about it because of its valuation. It always seemed very rich for my pallet and as a result, I refrained from writing about it.

However things have now changed. Not wanting to get into why the stock has fallen to where it is and not getting into the production problems the company might have, I can now say that as far as the valuation of the company, the stock is now within the parameters of my speculation logic and under certain conditions, might be worth the risk of buying.

The reason is simple. The global touchscreen market is expected to grow at a CAGR of around 40% from 2013 to 2018. In terms of dollars, the total value of the touchscreen market is expected to grow to tens of billions by 2020 (depending on which research report you read).

So depending on how Uni-Pixel plays its cards, even if it captures a small piece of this market, it will be enough to make a big difference for the company and for shareholders.

Please take notice that this article is not about deciphering if Uni-Pixel is in a competitive position to take advantage of this development, but that its current market cap and balance sheet permit for modest risk taking at current prices, with the potential for substantial upside profits for current shareholders, if the company is able to gain traction in the space.

The main parameter in my investment logic is the fact that Uni-Pixel's market cap has fallen to about $175 million. This is a very small market cap for any company, which can capture a piece of the touchscreen market in the future. If analysts have it right, and if the touchscreen market will grow to become tens of billions in the next five years, then if Uni-pixel can capture even a small piece of this, it might mean big time profits for shareholders.

Another parameter to keep an eye is dilution. Due to the development stage nature of the company, it has been issuing stock at a very rapid pace. In fact, over the past 3 years the total number of shares outstanding have gone up sixfold. This means is that investors have to weigh the risk of dilution.

UNXL Shares Outstanding Chart

UNXL Shares Outstanding data by YCharts

However, looking at the company's most recent quarterly report (just a few days ago), the company has about $46 million in cash. Since its most recent quarter registered a loss of about $5.3 million, I will give the company the benefit of the doubt and say that it will not need any money for the next twelve months and it will also not issue any shares. So to a great extent we have dilution and the balance sheet side of things covered for at least twelve months (if not more).

Another thing to watch for, is when and if the company might finally produce some revenue. According to management's discussion in its latest quarterly report, management seems to be concentrating all its efforts on building up production capacity, in anticipation of significant demand for 2014. All this even it is not selling any product today.

Our goal in terms of equipment capacity is to reach machine capacity of 1.3 million in the first quarter of 2014. Throughout the rest of 2014, we're still planning to build out equipment capacity lines to support increasing anticipated demand, with this accomplished by adding plating lines at the Rochester site which is capable of supporting 15 plating lines. We will also focus on increasing throughput via continuous process improvement.

It does not matter what people think of the company's technology or products, because the above statement tells me that there must be strong demand for the company's products from the marketplace. I find no other explanation for the above statement.

I don't know who the interested customers might be (and I don't care), but logic dictates that all this anticipated demand the company is talking about must be there, because management has seen significant interest for its products from the market. If not, and management is pulling our leg, then I assume they are prepared for a class action suit (sooner or later) if this demand does not materialize.

Bottom line

As I see it, investors might want to take a chance on Uni-pixel at current levels, because if this company gains any traction in the touchscreen space, future profits for current shareholders might be substantial.

While we do not know if the company will succeed in this endeavor or not, the fact that the company is building up capacity, might be a sign of significant interest from the marketplace. And based on the company's balance sheet, I think this stock is worth buying for the next twelve months, if investors are prepared to take on increased risk in exchange for the possibility of significant profits.

Source: Why Uni-Pixel Might Be Worth The Risk