An Irrational MVIS Market

Cause and effect are logical cousins. We expect them to be quite familiar with each other. The stock market doesn’t work that way – at least in the short term. MicroVision had a rare event, a press release that included data and dollar signs. They made money because they made something. This is good news! The stock popped; and as of today is right back where it was before the announcement. As an investor I have a simple model and expectation of how much a stock may be worth. The market and I disagree; and the market is what sets the price and the worth, regardless of my logic – at least in the short term. The news, however, suggests that the long term may not be too far away.

Ta Da!
MicroVision Receives Nearly $1.9 Million in Component Orders for Fortune Global 100 Customer
Development on display module complete; MicroVision expects to begin component shipments in Q4 2014

There are investors, or at least traders, who see a press release and buy or sell before they’ve read the news. In this case, I think they got as far as $ and bought. MVIS popped up 10% in the first hour. Then the stock started sliding back. Maybe they finally got past $1 and noticed that the next character was a decimal point. MicroVision made $1.9 Million, nearly; so, really probably a bit more than $1.85 Million. That’s a lot more money than I have, but there are houses in MicroVision’s neighborhood that cost more. It was good news, but it wasn’t great news. It wasn’t the sort of news that meant the company was profitable. And the stock settled back down, the energy spent. Evidently, the investing community is expecting bigger news and isn’t willing to hold the shares in the meantime.

My favorite valuation model is Present Value of Future Revenues, Discounted for Risk. Assume that someday they’ll make money, regress to today using some interest rate like 10%, and then take that number and reduce it by some percentage based on how likely they are to make that money. Peter Jungmann posted his estimate of the future share price based on future revenues. I appreciate his model, have my own values for some of the ratios, and am impressed that he has the courage to publicly post his answer. So many talk but don’t post. I’ve posted mine before as well, but it is late and my link is harder to find (here’s a piece of that story); so, let’s just use his. “Microvision @ $1,786 /share?

Share prices over a thousand look incredible, but he is not the only one to come up with such high numbers. I came up with something similar. Others have quietly emailed me theirs. Assume it takes seven years for MicroVision to become that successful. Regress the revenues back at 10% and find the price has dropped by about half; $854. Today the price is $1.93. The discount for the risk = 99.95%. (1.93/854~.0005) If I found that kind of discount on anything and could afford it and expected to be able to sell it, I’d buy it. Which I have in the case of MVIS.

My logic, however, is not popular enough to be reflected in the market.

Okay, I like such a high estimate for the stock; but I’m not surprised the market isn’t matching it. I am surprised that the market is effectively discounting it 99.95%. Even just based on luck the odds should be better than that. A 90% discount would be $85.40; which I think is reasonable. One of the reasons investors balk at that idea is that they are considering the share price without considering the number of shares. MVIS went through a reverse split a few years ago 8:1. Based on that share count, today’s 90% discounted price would be $8.54. Market psychology trumps market mathematics.

When I saw the news I saw the decimal point. $1.9 Million is nice, but it doesn’t affect my model. The parts of the headline that would affect my model, or at least how someone else may use it, are “component orders” and “shipments in Q4 2014“. As usual, there were few other data in the rest of the release, which is also why the stock may have come down, and also why the discussion boards are parsing the news a week after its release. Component orders, though, are an important step for a company that has been relying on development contracts. Hardware is being manufactured and shipped. Shipments in Q4 2014, mean things are happening now, not in some far off projected date. For me, the probability of success has just increased and the discount for risk has decreased. That’s enough reason for the stock to move.

Evidently, the stock does not agree.

I, like many of the MVIS investors who’ve owned the stock for years or decades, am anxious and eager for the company’s progress. So often they’ve made announcements, we’ve been exhilarated by the promise, and disappointed by the delivery. Now, we seem to be entering a phase where the events are more substantial, the far off anticipated events aren’t as far off, and we can base our discussions more on data than conjecture – though we have a long way to go there.

Eventually, eventually, if, if MicroVision succeeds, then I think it is likely that this market that has marked MVIS down by an irrational 99.95% may counter their history by marking it up with an irrational premium. And, no, I don’t expect a multiplied premium of 2000 (99.95% = 0.9995 = 5/10,000 inverted would be 10,000/5 = 2,000); but hey, there’s evidence enough that the markets are irrational. They didn’t listen to my logic before. They probably wouldn’t listen then, either.

Okay, MVIS, sooner is better than later. I’ve got bills to pay.

About Tom Trimbath

consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.wordpress.com/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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