Did you ever have a party, and had no one show up? I’ve almost had that happen. Did you ever have something to celebrate, and find yourself in a crowd of strangers? That’s happened more than once. GigOptix hit a critical day in the maturation of a corporation. They made more money than they spent. They made a profit. Based on the market’s reaction, no one cared – well, except for a few folks like me. The lack of thunderous applause doesn’t change the fact of the accomplishment. Maybe the celebration comes later.

There was a good chance that GIG, which is GigOptix’ stock symbol, was going to have a good day. Yesterday they announced profitability. Every company has two main phases, when they are young and spending far more than they are making, and when they are old and making far more than they are spending. There are infinite variations on that norm, but the day to celebrate is when a company graduates from the first phase and enters the second. In a simplistic view, the company and the stock go from being a speculation to an investment. Graduation day has some weird mathematics though.

Math geeks know what happens when we try to divide by zero. Things blow up; at least mathematically.  When a company is losing money, even if they are growing revenues and decreasing expenses, the price to earnings are negative because the earnings are negative. When a company is making a profit, the price to earnings is positive; and can be used to evaluate the company and the stock. When a company crosses that point when revenues and expenses are exactly the same, the earnings aren’t negative or positive because they are zero. Divide by zero and the result is infinity. Infinity to and beyond is a great attitude, but a lousy mathematical situation.

Great debates transpire about what is the proper price to earnings ratio. Mature conservative companies may have a value of about one. Disruptive companies in an enthusiastic market can have ratios about twice their growth rate. A company that is growing about 10% a year is doing reasonably well and can have a ratio of about 20. (P/E = 20) Above that and the stock may be pricey. Below that and the stock may be a bargain. Pay attention to the words just used: debate, about, may. Bull markets shift the numbers higher while bear markets shift the numbers lower, and all that is altered by the general market versus the specific industry versus the specific competitors. Like I said, great debates transpire.

GIG has traded at about a P/E of one. GigOptix makes very high-end electro-optic switches. If that last phrase didn’t mean anything to you, don’t be surprised. GigOptix makes things that let us stream movies without hesitation, but they do it in a way that may be hard to understand. The demand is easy to appreciate. Very few companies can do what they do. I think their technology is disruptive. I think their industry is growing. I think they have a lot of potential. The market is pricing them as if they were a construction firm that isn’t growing. That may be because the analysts understand something I don’t. It may be because the analysts don’t understand the technology, aren’t allowed to look at such immature companies, or are too busy chasing around the mega-bucks from the mega-wealthy who are most interested in the mega-corporations.

GigOptix made $32.9M in 2014, a 14% increase over 2013. Take that 14% growth, multiply by 2 to get a P/E of 28, and realize that the E was nearly zero so the math falls apart.

That’s why I look at Price to Sales for small companies. If you want the details, go buy my book. In the meantime, I use a Price to Sales of about 6. Revenues ($32.9M) times 6 equals $197.4M That’s my estimate of GigOptix’s worth. Even after the good news, the market thinks GigOptix is worth $32.8M (based on market capitalization). Divide my estimate by the market cap and get about 6. If the market drove GIG from today’s $1.19 up to $7.16, I’d think it was finally recognizing GigOptix’s current conservative value.

But, it didn’t. GIG barely moved. About 118,000 shares traded, which sounds like a lot, but at $1.19 that’s only $140,420 traded. That’s not even a real estate deal.

And yet, that’s what I’m watching happen to many of my stocks, most of which were bought with the strategy of buying small companies and selling them after they are large.

MicroVision had good news too. A product that they are key to (PicoAir & PicoPro) inspired the following tweet; “The initial demand for #PicoAir far exceeded our forecast. We are working hard to get the devices to you ASAP. Thank you for your support!”

– @Celluon News like that should be news. MVIS was even quieter than GIG.

I sit back and watch good news go unnoticed, except by the loyal stockholders, and I wonder how much has changed. In rational markets, stocks move based on math and logic though with some psychology shifting the outcome. In irrational markets, emotions rule, the crowd rules, and math and logic are inconveniences. The markets are hitting record highs, but the markets represent the large companies and therefore the large portfolios. Every large company started small. Does this mean that these small companies will eventually reach such large valuations, or has something fundamentally shifted such that they won’t get that chance? Dendreon’s bankruptcy reached a critical point today too. They were small, disruptive, and technically successful; but failed financially (and arguably through purposeful intent.) Has the corporate, industrial, and financial immune response developed an actively negative reaction to anything new? Or, is it just a matter of time before the good news filters through?

When I bicycled across the bridge to Key West after riding across America, and when I stepped onto the bridge over Aberdeen’s train tracks after walking across Scotland I did so alone and relatively quietly. Both of those accomplishments deeply improved my life, regardless of the size of the celebration. The changes just took time to filter through. Maybe the same will happen here, as we pass through this investing phase.

I’ll quietly lift a glass to all three, GigOptix, MicroVision, and Dendreon for different reasons; and hope to have a more boisterous party some time soon.

PS To the fellow MVIS shareholder who was planning ahead, when in doubt, Glenlivet and the older the better. Some good things just take time.