My Overly Simplistic MVIS Valuation

I was inspired by a friend, and as so often happens, the thing I created isn’t as fancy, isn’t as detailed, but may be useful in its own way. I know it has already helped me, and only partly because of the numbers it produced.

About a month ago, Peter Jungmann posted a program that would estimate the value of MVIS shares based on a few simple inputs. Trying to calculate the “correct” value for a stock is simultaneously something worth doing, and something that is impossible to do perfectly. And yet, investors should try. And yet, few do. That’s why I’m impressed by anyone who tries, more impressed by anyone who publishes their results, and most impressed with anyone who makes their method available to others to test and improve.

Speculators may only care about the price movement of a stock, but investors are more likely to be investing in the company. Hopefully, the success of the company is reflected in the stock, which tends to be the case. There are, however, no guarantees.

I knew about Peter’s post, but hadn’t found the time to play with it. Besides, just knowing he’d posted it inspired me to revise my estimates. Being an independent sort, I wanted to calculate my estimate and then compare it to his.

I’m an advocate of simple living, but hopefully not too simple. I’ve seen the pages of data that are published in the annual report. I study them for the stockholders meeting, but I need very little for my valuation estimate. Basically, a company makes money from selling goods or services or both. If they can’t make a profit, then there’s no reason to buy the stock. For simple companies, if they sell a product, they ideally make money on each product sold. If the price of the product exceeds its share of the total expenses of the company, then the company makes money.

Sophisticated models can dive into costs of materials, labor, facilities, management, taxes, ad nauseum. Sophisticated models can also dive into details of sales, royalties, licenses, and more nauseous (though profitable) details. Pay me enough and I’ll happily dive into seven-dimensional analyses of a business model. It’s like the work I did on flight simulators for Boeing. Geek out!

My simpler approach is to estimate the size of the market, the company’s market share, the profit per piece, the number of shares in the company, and the premium the investing community will apply to the stock. The first three items are company measures, objective measures whether the company is public or not. The last two deal with the fact that the company is a corporation, with only the last measure acknowledging the public stock markets. The model is overly simplistic, but it is also more likely to be used which means it can be more useful.

For MicroVision there are few factual numbers.

The company has already sold components for products as diverse as smartphones, head up displays, and bar code scanners. Rather than model all of them, I use smartphones as a proxy for the market size MicroVision can sell to. Personally, I don’t think projectors embedded in smartphones is MicroVision’s most disruptive potential. I suspect MicroVision can enable a display revolution analogous to the switch from CRTs to flat panel displays, and the switch from laptops and tablets to smartphones. In the meantime, though, there are about 1.5 billion smartphones sold per year. If the company achieved a 1% market share, that would be 15 million units. Fifteen million units far exceeds any of MicroVision’s previous sales volumes. If each unit resulted in $1 of profit, that would simply be $15M in profit. That would barely exceed the company’s 2016 gross revenues. It was an impressive year for MicroVision, but $15M in revenues isn’t as impressive as $15 in profit.

There is one main number for the stock, the number of shares. That’s been changing dramatically since I’ve owned the company (A Study In Dilution MVIS). For a bit of conservatism, I assumed 75 million shares.

Multiple the size of the market x the market share x the profit per piece / the number of shares and get an estimate of the increase in the value of each share. Every investor gets to decide if that number is significant or not. If the current share price is less than their estimate, they’re more likely to buy and drive up the price. If the current share price is above their estimate, they’re more likely to sell and drive down the price. Every trade on the market is an investor buying and an investor selling. Disagreement is the basis of the stock market. There are many ways of estimating the premium. Some prefer price/earnings. (Small Cap Price To Earnings Reality) I prefer price/sales. Earnings have two problems: bookkeeping can artificially adjust them, and they are near zero at one of the most important times in a company’s and stock’s history. Sales are simpler to measure. (Want details? Read and maybe even buy my book, Dream. Invest. Live.)

It is a simple calculation, but I used a spreadsheet so I could play games with the numbers. What if this? What if that? The answer was ridiculously simple, which is fine because it made it easier to understand. It is easy to swing the answer by a factor of 100 by assuming 1% market share and $1 per piece, or assuming 10% market share and $10 per piece. A 1% market share and $10 per piece is effectively the same as a 10% market share and $1 per piece. The third variable that swings the numbers around is the premium. Multiple another multiple and a price to sales of 10 could swing it by a thousand instead of only a hundred. No wonder so many MVIS investors disagree on the proper price of the stock. Until these inputs are from real reports, there will be great unresolvable debates. It may seem flippant to suggest people come up with their own numbers, but that is the responsibility of the investor. Personal financing is personal.

At this point my independent spirit decided to look at Peter’s analysis. Of course, it was more complete, included expenses and taxes as separate items, and used price/earnings instead of price/sales. At least we came up with nearly the same answers, but only if we used the same assumptions.

The more sophisticated methods are more valuable, but mainly for understanding levels of detail that exceed my needs. I invest simply. I invest in companies that, if they succeed, are more than capable of meeting my investing goals. Investing in a stock that will hit a target to within a few percent is like buying a car with a range of 401 miles for a 400 mile trip. It might work, but don’t get stuck in traffic. This is one of the few times I aim for more than enough.

Thanks to so many posts about MicroVision, and too many files to sort through, I can’t find my estimate from 2007. Back then (and I cringe because I can’t find the reference, and hope someone will kindly provide it) there were estimates of MVIS hitting ~ $125 before the reverse split. Multiple that my 8 and get $1,000. Unfortunately, in those ten years the stock has been diluted by a factor of ten. But, the number of displays in the world has also grown beyond expectations. I look forward to comparing the previous estimates with the current estimates.

As for my estimate, it’s time for me to fix some of the variables, at least for my purposes. Eventually, I think MicroVision could exceed a market share of 10%, but they’re too unknown and have an unknown manufacturing capacity for me to feel comfortable assuming more than about 5% for the next year or two. I suspect competition and an unfavorable negotiating position will keep profits to about $3 per piece for a similar time. They may make more in the short term, but at low volumes. I prefer to assume price/sales of 6 for technology companies that are gaining attention, though market psychology could drive that much higher or much lower. Put that all together and I get a MVIS estimate of $18. That’s more than 7 times above today’s closing price of $2.49, a very nice return; and yet far below $1,000, or $100, or a nice personal re-retirement number of $300.

This is individual investing. This is MicroVision and MVIS. This is a crazy world, lately. Anything could happen. Stay tuned.

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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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