This Investors Dilemma MVIS V GIG

Decisions, decisions – personal finance is about decisions. I see a couple of appealing possibilities (based on conservative estimates) but can’t decide what to do; which, by taking too long, became a decision. The expected good news for one stock arrived today. Congratulations, GigOptix. There’s a possibility of good news tomorrow. Come on, MicroVision! I have very little to invest, but I’ve lost so much (Triple Whammy) that a little is a lot, relatively. Fortunately, all the choices are possibly good. That’s a switch.

I don’t own many stocks. I may own thousands of shares, but that’s only in about a half dozen companies, and none of them are trading at higher than $10. Two have an entwined history. Both have been working for years to reach critical milestones. Today (July 28, 2015) GigOptix achieved theirs. They became profitable. Tomorrow (July 29, 2015) MicroVision announces their earnings, and while profitability isn’t likely, it or something like positive cash flow is possible. As today’s market closed, one share of GIG cost $1.82 and one share of MVIS cost $3.26. For less than the price of a cocktail, it’s possible own a very tiny fraction of either very impressive company.

Profitability is a big event, even if no one notices. In an ideal world, companies have two phases: the startup company, during which they spend money to make money; and the mature company, during which they make more money than they spend. In the real world, there are thousands of variations because every company is different. They can bounce in and out of profitability, some never get there, some start there, and most eventually either merge, are acquired, are shut down, or go bankrupt.  MicroVision, and the slice of it that lives within GigOptix, have been steering towards profitability for over a decade. GigOptix got there first.

The longer story of MicroVision and GigOptix is long enough that it has its own post. Go back to it for the nuances of the interactions. I bought shares of the one, MVIS; bought more shares of the spinoff, LMRA; and then watched them become shares of a merger/acquisition, now GIG. Throughout, the companies have worked from technologies that are ingenious, disruptive, and problematic.

Today’s announcement was that GigOptix achieved GAAP profitability. GAAP is Generally Accepted Accounting Principles, a financial standard that is hard to reach. GigOptix got there with strong growth, strong profit margins, strong cash balance, and an expectation of continued strength. This is a big deal. The news was announced before the market opened. I considered buying a few extra shares, but I held off because I didn’t want to be impulsive and wanted to see how the stock would react. It bounced around, actually went down, then bounced back up to close up ~9%. If I bought yesterday and sold this afternoon, my return would exceed the conservative annual total market return. So it goes.

In part, I wanted to look at the numbers, and like so many of us, I was busy with my clients throughout the morning. It’s all good. By the time I got around to doing my analysis, the markets had closed.

One of the advantages of regularly exercising the same analyses is that each time is simpler. For GIG, I took the simple analysis I did back in February, and updated it. A bit of cutting and pasting may illustrate today’s process.

From February 10, 2015 – A Quiet Graduation Day For GigOptix
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.

From today’s announcement (7/28/15) – Increase revenues by 20% (The numbers varied, but I decided to keep things simple and conservative.) Copied from above and updated:
Revenues ($32.9M x 1.2 = $39.5M) times 6 equals $197.4M (x 1.2 = $236.9M) 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 – and $59.4M as of 7/28/2015). Divide my estimate by the market cap and get about 6 (and now about 4). If the market drove GIG from today’s $1.82 up to $7.26, I’d think it was finally recognizing GigOptix’s current conservative value.

So, the market is heading the right way, and is only off by a factor of four instead of a factor of six, in my opinion – and that’s after an 81% increase in less than six months.

So, duh, buy GIG. Right? Not yet.

Before the market opens tomorrow, MicroVision will announce their earnings. This is the first year I’ve felt that the company has negated the threat of bankruptcy. MVIS costs more. The market cap is higher. The probability of near-term profitability is lower. But, the potential is much higher. Where GigOptix may become an industry leader, it may happen within a smaller industry. MicroVision is poised to disrupt, or at least significantly participate in, the consumer electronics market, plus the near-field image capture market, plus applications that are innovative enough to surprise almost everyone. Even if they don’t have impressive revenues to announce, they have plenty of catalysts (check out my earlier post as a way to deep dive into the potential) that could propel the stock. And, of course, if they do have impressive revenues, that’s even better.

So, duh, buy MVIS. Right? Not yet.

I only have enough cash in my IRA to buy about a hundred shares of either. While maximizing the return of every single dollar makes mathematical sense, more, more, more opposes my tenet of enough, enough, enough. I’m quite conscious of the time I spend on any activity, including ones that may make me money. I’m quite conscious of the time I spend writing these posts. The disposition of a hundred shares of a tiny stock may be like a butterfly’s wings affecting something grander; but I think the most important message goes back to the title of my book, Dream. Invest. Live.Dream Invest Live cover Investing isn’t everything. Passing along that word is as important to me as what I do with a few hundred dollars in stocks. Of course I want, and actually need, my stocks to recover and grow; but, obsessing about money means missing out on life, and life is far more valuable. Dilemma solved.

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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One Response to This Investors Dilemma MVIS V GIG

  1. EK says:

    Tom,
    Nice finish! I so enjoy observing how a rocket scientist views investing…you seem too human to be a full geek!
    Cheers,
    EK

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