eMagin - Virtual Reality Clashes With The Real World

| About: eMagin Corp (EMA)

eMagin Corp. (NYSEMKT:EMA) designs, manufactures and sells "virtual imaging products." These products make use of organic light-emitting diode [OLED] display technology. The company manufactures the Z800, a 105-inch virtual display for movies, video games, and other applications. The Z800 has garnered rave reviews but with a $549 retail tag is pricey and that hampers its marketability.

Another of eMagin's products is MicroViewer, an imaging device that combines OLED microdisplay technology with optical lenses and an electronic interface for near-eye virtual imaging.

eMagin is headquartered in Seattle and sells its products to the military, medical, industrial and consumer markets. The company has a strategic partnership with Eastman Kodak. During a recent conference call, the firm made vague references to a potential contract for a thermal imaging deal worth up to $40 million over six years.

eMagin is a classic "rock bottom stock" -- in dire financial straits and maybe doomed. Some might say its tank has been running on "eMagination" and is close to empty. Although its technology is widely acclaimed, its stock has performed poorly in the real world. The company reported a $13 million loss for the last quarter, and the company effected a 1 for 10 reverse stock split last month to avoid delisting. Yesterday, (Monday, Dec 11) the stock closed at $1.58, down two cents.

EMA 1-yr chart:


The 52-week range for EMA is 1.52 - 7.20. The 50-day moving average is 2.00 and the 200-dma is 2.54.

EMA turned up in one of my screens today. This screen fishes for stocks that have hit bottom and are poised to rebound. It is the same filter that on Friday reported Advancis Pharmaceuticals (AVNC) had bottomed and would soon turn up. A day later, AVNC jumped 12% to close at $3.65

Trading rock bottom stocks is extremely risky. For that reason, I approach most of these stocks as speculative, short-term swing trades, which is my strategy on eMagin.

It may take a miracle (or a buyout) to put a rudder back on this ship, and losing $13 million a quarter is a toxic recipe for bankruptcy. Still, I like small firms with cutting edge products that receive rave reviews, and it makes me wonder whether these positives might pique a potential buyer's interest.

In my experience with small stocks such as EMA, a confirmed bottom is typically followed by a price spike. Although this upward movement is usually not be sustained and the price falls back, I often find good swing trades along the way.

I do not own EMA but I have added it to my watch list. Looking at its recent behavior, I don't expect much play below yesterday's close ($1.58) and if I see support at this level and a chance to buy at $1.55, I may jump in, hold for up to 60 days, and look to exit on a 20% price spike within that time frame.


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