MicroVision (MVIS) is proof that investing doesn’t have to be dull, and just like in any news item digging deeper uncovers unexpected gems. Owning shares of MVIS is a cause of severe optimism, serious pessimism, prolonged patience, and considerable consternation. They may revolutionize the electronic display industry (go ahead, count how many displays you see in a day) or they may go broke. Finding out what’s happening is an exercise in parsing press releases (Deciphering News), attending stockholders meetings (Corporations Meet Owners MVIS 2012), trawling through discussion boards, driving past the company parking lot, or even going directly to the source and contacting the company’s Investor Relations official. Put it all together and I still may not come up with an answer, but I learn something every time.
A client (did I mention that I consult with creative people?) asked me how I research small companies. I prefer to value companies based on “Present Value of Future Revenues Discounted for Risk”. Which needs an acronym so how about PVFRDR? I use it because when I buy stock it is usually in a company that has yet to make any money. There’s less competition for the shares because there’s less certainty about what they are worth. I avoid the other end of the investing spectrum because there is great certainty about how much mega-corporations will make, and they are tracked and traded by legions of financial institutions. I invest where there is great opportunity and uncertainty. My risk tolerance is higher than most, which has been dramatically tested these last two years (coming up on the anniversary of the worst partly described in Triple Whammy).
We talked about my method from my book, Dream. Invest. Live., but basically, if I find a company that may be worth $1,000,000,000 five years from now and their current market cap is less than $500,000,000, then buying their stock now would return 15% a year. But it isn’t that easy. There’s always a finite chance they will fail, so the discount for risk is a guess. If they have a 50% chance (and here it helps to know something about the industry and its history) then I check against 0.50 x $500,000,000 = $250,000,000. If they have a 10% chance then I check against 0.10 x $500,000,000 = $50,000,000. Consider yourself perceptive if it seems like there is a lot of guesswork involved. The key for me is that future revenue. Few companies provide a number because they don’t want to go to trial for over-exaggerating the company’s prospects or be charged with attempting to manipulate the stock. We investors have to find the numbers ourselves despite the fact that the company must have a guess because otherwise they wouldn’t have formed the company.
So, lets go back to MicroVision. They have the potential to impact the multi-billion dollar electronic display industry. I’ve held the stock for over ten years and have always felt that this year or next they might finally begin their ascent. Delays have happened every year, but recently the news has become more immediate and the delays are shorter. Products should be available within six to nine months, for the last two or three years. It’s progress. (Hey, next week is within six months.) But wait, news has hit the wire, or the net. Lately the problem has been volume production and someone found some great news. The article uses the words MicroVision and pico-projector, and the numbers $19 and 2,000,000 units and 100,000,000 units, and the times of this year. If MicroVision sold 2,000,000 units at $19 their revenues would exceed their market cap. Play with that 100,000,000 number and Wow! maybe I’d be back to retired again.
Excellent. But the news was in Chinese and most of those words and numbers were surrounded by characters and guesses. Ah, but welcome to the world of automatic translators. Thank you Google! Now everything is in English words and recognizable units, but a string of words doesn’t necessarily become a sensible sentence. This was playing out on the discussion boards and folks dove in to parse the parlance and delve into the data. We may have just stumbled upon a leak, a highly profitable and public trading advantage, and the sort of news that optimists have anticipated for years. Calls for human translations went out through the community. The sparse and improved response confirmed much of what we thought, but weren’t complete professional translations because we were asking for alot and paying nothing.
There were some hints that we found the investor’s version of fool’s gold. The stock moved, so someone knew about the article, but it only went up 20% not 200%; and the volume was up, but not enough to convince me that institutions were jumping in. There wasn’t any press release from the company, but my expectations are so low that I accepted that. Google News didn’t pop up anything, not even the article. It was passed along by a link on a discussion board. The twitter and facebook feeds were quiet, only reporting on the departure of our preferred Investor Relations representative; but, maybe her departure explained the lack of news. Real life human events affect the supposedly automaton functioning of corporations. I even checked YouTube for official or unofficial videos in case someone uploaded some images of a new product. It all added up to nothing.
The news about the news came in. Evidently, the source was an Asian stock tabloid that has a reputation for publishing articles that would probably violate SEC rules. It was published months ago, and either republished or rediscovered. Some of my interpretations were confirmed. MicroVision wasn’t the only company mentioned, though it was prominent. The other players are bigger and may account for the majority of the 2,000,000 units to be shipped. The 100,000,000 units may be a total market number not a 2012 production quota.
So, there was no news, but it was suggestive; so, maybe the exercise was useful. The industry is developing. There are numerous suppliers and customers. If MicroVision was to achieve 10% of a 100,000,000 market and make $10 profit on each unit they’d make $100,000,000. Use a price/sales ratio of 10, a reasonable premium (in a normal market) for a disruptive technology and MicroVision gets a market cap of $1,000,000,000: a thirty-fold increase in stock price (assuming no dilution). OK. Can I have that now, please?
And there the argument/discussion/debate/consideration continues. Are any of the data trustworthy? What if they get more than 10%, or less? What if the market is larger, or smaller, or sooner, or later? How much profit can they make, and will that change with time, technology, competition? Will the markets return to higher premiums for price/sales and such, or are we in a new paradigm?
Yep. Even without any real news, we have a lot more to talk about. Imagine our conversations when we MVIS shareholders really do get good news. It should happen anytime now. Didn’t I hear that an announcement or three were due in the second half of 2012? Hey, look at the date! It’s July 7th! Sometime in the next 180 days or so there should be a really good press release. Aren’t we due? I’ll go check the news.
Giving credit where it is due – MicroVision Investor Relations did their job. I asked them about the article and they dutifully responded. Go over to the MVIS board on InvestorVillage for the text of the exchange and the subsequent shareholder discussion.