MicroVision Has Potential but Is Hardly Worth Its Current Price

MicroVision (NASDAQ:MVIS) stock has emerged as a “meme stock” gaining exponentially at the expense of the  r/WallStreetBets message board.

Shares of the small tech company have returned an incredible 583% to its shareholders in the past six months. However, the company’s long-term growth prospects are dubious at this point.

MVIS stock faces massive valuation headwinds if it fails to scale its automotive lidar business successfully.

MVIS stock soared in April when the laser technology company began blowing up on the r/WallStreetBets forum.  The goal was to create some social media buzz and get people to buy the stock indiscriminately, leading to a short squeeze.

It remains one of the most shorted stocks in the market today, with a short interest of roughly 20%. As of now, MVIS stock’s valuation is completely separated from its fundamentals and its growth prospects.  Let’s look at some of the key aspects of MVIS stock’s bear case.

Development Troubles

MicroVision has had a considerable development history that has spanned several years, but it has struggled to grow its revenues at a healthy pace.

Internal lidar research began close to a decade ago, but it is yet to solidify a sales strategy that consistently grows revenues. As a result, it has been unsuccessful in scaling its revenues, despite having reasonable success at launch.

Furthermore, there has been a lot of hype surrounding the company’s strategic alternatives, but there remains a significant risk that these alternatives are even successful.

There was news that it was looking to sell off a part of its business. There also has been a lot of hype surrounding Microsoft’s (NASDAQ:MSFT) $22 billion defense contract and MicroVision being its component supplier. However, the potential royalty incomes to be generated from such an arrangement have proven to be inconsequential.

Automotive or long-range lidar, has been in development for over two years nd its capabilities exceed OEM requirements with a significant cost advantage. However, the sensor is still undergoing outdoor testing, and the pandemic has seriously hampered its development. As a result, pre-RFI processes could take a year or more as per the current timelines. Moreover, the competition in the sphere is rising, limiting the revenue potential for MicroVision.

Deplorable Financials

Lackluster sales, consistent losses, and dilution have been the story for MicroVision for the past few years. In the first quarter this year, its revenues were down 66% on a year-over-year basis to just $500,000.

Worse, losses widened from $4.9 million to $6.2 million during the quarter. On top of that, it was cash-flow negative at $4.5 million. Despite all that bad news, MVIS still trades at a market capitalization of over $2 billion.

Analysts expect its 2021 sales to be at $4.1 million, which puts its forward price to sales ratio at a whopping 545 times. Such a multiplier may have been reasonable if there had been some major contract in hand or a buyout offer, but this isn’t the case here.

It isn’t unusual for growth companies with minimal revenues to have negative cash flows. However, it is strange for a growth company to trade at such erroneous price multiples, which have nothing but social media buzz going for them.

Bottom Line on MVIS Stock

MicroVision is a buzz stock that has quite the year so far. MVIS stock has gained a remarkable 157% since the start of the year as part of the Reddit-induced short squeeze.

However, as the smoke clears, it’s obvious that MicroVision is a horrendous investment. Apart from its stock being grossly overvalued, its fundamentals are incredibly weak with a dicey outlook.

Furthermore, it has had a poor track record of scaling revenues and commercializing its product offerings, which should be doubly difficult in the competitive lidar sector. Therefore, it’s best to steer clear for MVIS stock at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.