Mitek Systems: The Perfect Storm In Leading Edge Technology

| About: Mitek Systems (MITK)

Leading edge technology offers an amazing investing opportunity to those with the foresight to catch the trend and ride the wave to triple (and sometimes even quadruple) digit gains. In the past, those with this foresight invested heavily in Netscape (browser), AOL (dial up), (video) and Google (NASDAQ:GOOG) (search engine) and came out as millionaire investors. While others with a lack of knowledge were shorting these stocks, the pioneers had the vision to see that these companies were going to change the way the world works.

The technology

The mobile imaging market is being driven by irreversible trends. Most of the phones being sold today are smartphones that have sophisticated cameras. The pixel clarity improves with each new generation. As the mobile camera improves, the capture rate of data improves. One company stands poised to storm the market and capitalize on this technology.

Mitek Systems' (NASDAQ:MITK) camera capture technology is able to record pictures of checks and accurately deposit them in a bank or brokerage account. MITK has signed up six of the top 10 banks, including BOA (NYSE:BAC), Chase (NYSE:JPM), Schwab (NYSE:SCHW) and Fidelity and has agreements with over 80 clients. To date, 26 clients have successfully implemented the technology.

The generational improvement in smartphone cameras is quickly allowing mobile imaging to enter additional markets. The possibilities are unlimited and go so far beyond simply depositing checks. Mitek has already developed an application for paying bills. With this application and one click, you will be able to pay bills from your smartphone. In the future, we see smartphone applications for insurance forms, pharmacy forms, medical records…well, you get the picture.

The case

I would like to share some bullet points with you to make your research on MITK easier. There are irreversible trends in technology today that should make MITK mobile imaging technology the industry standard in many markets. Early adoption is already underway.

The facts

  1. The Independent market research firm Mercatus llc, has published a mobile banking report funded by Visa, favorable to Mitek Systems.
  2. The research report published by Mercatus llc calls for 1.5 billion mobile deposits by 2014.
  3. According to the market research published by Mercatus llc, transactional cost of a deposit is cut from $1.50 per transaction to a dime when using moble check deposit.
  4. Mitek Systems is followed by William Blair and Janney Montgomery Scott.
  5. Mitek Systems is profitable and has $16 million in the bank, alleviating the need for additional financing.
  6. Mitek Systems' second application, Bill Pay (pdf), was named best of show at Finovat Spring 2011.
  7. Mitek Systems has developed a point and shoot application to transfer credit card balances to springboard into new markets.
  8. Mitek Systems has a proven and experienced management team.
  9. Mitek Systems has partnered with industry leading banks to propel its growth to the stratosphere.
  10. The current short position in MITK is 1,772,100 shares and growing; large short positions can be quite difficult to cover, often resulting in a short squeeze when market conditions turn.
  11. Please go to the Mitek Systems website for additional information.

Shorts often win

Professional short sellers usually benefit from the enormous capital requirements companies need to bring their technologies to market. The need to finance operations often lets short sellers cover their position, even if they (the shorts) are completely wrong.

A lot of capital and willingness to blindly short millions of shares can be enough to destroy many publicly traded companies. However, it can be an investment disaster to recklessly short stocks of ground breaking technologies that alter the way we carry out our day to day transactions.

Short sellers are currently selling somewhere in the neighborhood of 50 thousand shares of Mitek Systems shares a day, despite the opinions of two credible Institutional wall street analysts that currently have buy recommendations on the stock. I guess having traded on the bulletin board and having a yearly low of $1.50 has proven irresistible to this class of short sellers. Perhaps these short sellers should watch the next Schwab commercial on mobile bank deposit.

Kamikaze pilots usually die

Without trepidation, short sellers have relentlessly sold Mitek System stock. Entrenched shorts blinded by their greed have built a sophisticated network whose goal is to destroy many companies, while pocketing millions in the process. They systematically place their bets, and all hell breaks out in the securities they build these humongous short positions in.

The short sellers count on the lack of investor awareness of how NASDAQ markets operate, and the cooperation of the market makers, to whom they give millions in business yearly. The ability to manipulate stocks in the short term often discourages investors, brokers and fund managers. Investors of all stripes start to question what is going on. Shorts win when investors capitulate.

For the last two weeks I have spent every day glued to the level two market maker screens observing the trading of MITK. Having spent 15 years in the profession, I have a lot of knowledge on how NASDAQ markets operate. The systematic manipulation of MITK, in spite of being under accumulation by new funds, has been quite the spectacle to witness. The way this stock is being shorted is a prime example of why these professional shorts are universally hated.

For a small company it is often quite difficult to produce enough investors following the company to offset the seemingly endless supply of stock these shorts are willing to sell. When these shorts are wrong they lose big. It is nearly impossible to cover short positions of 10 or 20 percent in companies that will soon produce earning momentum.

A call to arms

I own MITK, I have done extensive research on their technology, and I hate these shorts. I encourage everyone to do their own research. Betting against a stock is one thing, but setting out to systematically destroy the psychology of investors seems anti-American to me. I am reaching out to all Investors looking to catch that technology wave capable of producing unimagined gains.

It will be quite ironic that these shorts will soon be able to cover their margin call utilizing mobile check deposit.

Disclosure: I am long MITK.