MicroVision: A Buzz Stock Not Worth More Than $3
Summary
- MicroVision’s market price remains totally removed from reality, even after Friday's 15% drop.
- Social media buzz and an orchestrated attempt to ignite a short squeeze caused MVIS to explode in April.
- Neither sales nor earnings justify the insane valuation we see today.
- MicroVision has a fair price closer to $3, and the stock is doomed to fall once the hype dies down.
Hype-stock MicroVision (NASDAQ:MVIS) is irrationally overvalued and there is no justification for the current market price at all. The stock is at risk of a severe correction once the bubble starts to deflate.
Social media buzz
MicroVision's stock soared in April after the laser technology company began to be hotly discussed on the popular WallStreetBets investing forum on Reddit. The buzz from this forum sent another stock soaring, GameStop (GME), which was also heavily shorted by hedge funds. The idea: Get enough retail investors to band together that buy a stock and create a short squeeze that forces the big guys to liquidate their short positions.
This worked with GameStop but the bubble has already started to deflate and prices are nowhere near their short squeeze highs…
The same logic applied to MicroVision: Create some social media buzz, get people to buy MVIS indiscriminately and hope that this mass buying creates a short squeeze.
MicroVision is still one of the most shorted stocks on Wall Street with about 20% of its float being sold short.
Buzz technology of a buzz company
MicroVision develops lidar sensors used in automotive safety and autonomous driving applications. "Lidar" is another buzz word and is often used in reference to the automobile industry, but not exclusively.
Lidar is a remote sensing method where a laser marks a target and then measures the distance. The Lidar technology is important for autonomous driving where the driver effectively outsources vehicle control to a computer that in turn relies on lasers to make sense of the environment.
(Source: MicroVision)
Lidar is an emerging technology with a potentially long run way in different industries. Lidar sensors can be used to control and navigate automobiles but they also have applications far beyond the autonomous driving space. Lidar sensors are used in surveying, geology, seismology and others… everywhere really where a 3D image of the environment is required.
But what about the financials?
MicroVision itself dealt the WallStreetBets investing forum a dose of reality last Friday when it reported a revenue drop of 67% Y/Y for the 1st quarter 2021. Losses in the 1st quarter also expanded Y/Y from $4.9m to $6.2m while the company recorded a $.04-share loss, the same as last year.
Yet, MicroVision with less than half a million dollars in 1st quarter 2021 sales and total FY 2020 sales of $3.1m has a market capitalization of $2.4b. Estimated sales for FY 2021 are $4.1m, so if we use the calculator to derive the P-S multiplier factor, we get an insane number of 585x.
This multiplier may be justified if MicroVision signed an exclusive Lidar supply contract with Tesla or received a spectacular buyout offer, but this isn't the case here.
It is not unusual for growth companies with just a few million dollars in revenues to have a negative cash flow, especially companies that are still spending heavily on research and development. What is unusual, however, is that MicroVision has started to trade at such large sales multipliers... with not much more than a short squeeze going for it.
MicroVision was cash flow negative $4.5m in the 1st quarter and has a high cash burn.
(Source: MicroVision)
Even if MicroVision could quintuple its revenues next year from $4m to $20m, which is doubtful at best, MVIS would be outrageously expensive at 117x future sales. MicroVision's valuation, despite the 15% drop on Friday, is totally detached from reality and can't be justified by sales, earnings, cash flow or short term growth prospects. The extreme valuation exposes people that want to make money by forcing a short squeeze to incredibly large risks because MicroVision's valuation will eventually return to planet earth.
Even if we were to assume extremely generous sales of $20m next year and apply a 20x sales multiplier factor that some of the fastest growing cloud companies get, we would arrive at a valuation of only $400m, which is more than 80% lower than where MicroVision's valuation is now. Broken down to the stock level, MicroVision would then not be worth more than $3-share… which is about the same level MVIS was trading for at the end of last year, before the hype started.
Or, let's say that MicroVision gets an extremely generous proposal from a company that wants to buy its intellectual property, technology and some equipment and that this firm makes a once-in-a-lifetime offer to pay 50x carrying value for MicroVision's non-current assets.
Since only 4.7% of balance sheet assets are non-current, an acquirer would pay $185m for MicroVision's IP and technology. Add on $76m in cash and cash equivalents and an acquirer would not pay more than $261m for control of MVIS… which is 89% lower than MicroVision's market valuation today.
(Source: MicroVision)
Closing thoughts
No matter how you spin it, MicroVision's valuation at $15.25 is unsustainable, removed from reality and it is only a question of time until the stock drops to where it was before the bubble… to $3-share or less.
Betting on a short squeeze is not an investing strategy. Just because something is popular doesn't mean you are guaranteed to make money on it and I have a feeling that the MicroVision stock bubble will end with a lot of people being in tears.
This article was written by
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