Majorly Overvalued Microvision Stock Is Worse Than A Gamble
MicroVision is still up for sale, just like the CEO said it was and the latest 10-Q report indicates. Unfortunately, there are still no buyers.
For some reason, the market thinks a deal will happen when the stock is at a market value of $3.41 billion. Allow me to provide an evidently-needed reality check: MVIS stock isn’t worth nearly that much.
In fact, as I pointed out in my last article on May 10, Microvision is worth at best half of its market value of $2.2 billion at that time. Today MVIS stock has a wholly untenable market value of $3.41 billion.
MicroVision Won’t Sell At This Price
For one, its sales last quarter were $479K. None of that was from product sales, mostly just royalty income.
Second, the company is burning through its cash. It produced negative free cash flow (FCF) of $5 million, as can be seen in its Statement of Cash Flows (page 5 of its latest 10-Q report). Given that it has $75 million in cash, it might be able to last a while.
However, if MicroVision has to begin production of its latest Lidar products, it may not have the cash it needs to ramp up production. The company said that after the next 12 months, “We may require additional capital to fund our operating plan past that time.” It did not specify what exactly that entails. But in order to achieve production of 12,000 to 15,000 sensors by the end of 2022, that will require a good deal of working capital.
As a result, the company says that it has changed its business strategy. Here is what the latest 10-Q states on page 19:
“As a result, we plan to focus our attention in the near term on strategic alternatives, including a potential sale or merger of the Company, sale of part of the Company, strategic minority investment, as well as licensing and other transactions.”
A third reason is that its comps are cheaper. For example, Velodyne Lidar (NASDAQ:VLDR) has a similar product and $85 million in forecast sales this year. But its market cap is just $2.1 billion.
Come on, now. There’s just no way that a strategic buyer would pay a more than 60% premium for a company with no sales in the same industry.
This really doesn’t leave MVIS stock in an enviable position, especially given its runup over the past month.
What To Do With MVIS Stock
According to Seeking Alpha, there are just 2 analysts that cover MVIS stock. Their average price target is $3.00. Compare that with its price today (June 15) of $20.42. You get the point. No one on Wall Street believes in this skyhigh valuation.
The point is that by every measure this stock seems super overvalued. One analyst in Seeking Alpha wrote that, as a favorite of WallStreetBets, MVIS stock might have some value to Microsoft (NASDAQ:MSFT). Microsoft uses MicroVision technology in its augmented reality lenses for its HoloLens 2.
But let’s get real here. Why hasn’t Microsoft bid for MicroVision yet? If it is so enamored with the company’s technology and knows that the company is up for sale, why hasn’t there been an offer already? And why would they now pay 60% more than they could have just a few months ago?
The setup does not look good for MVIS stock. My logic could be off though. Maybe the reason why MIVIS stock is up so much is that Microsoft is really considering buying the stock.
This implies that insiders leaked the news and have bid up the price. But that is a very weak reed to lean on. It doesn’t stand up to logic and caution. You can’t buy MVIS at this price based on that reasoning. Microvision is more speculative than pure gambling.
On the date of publication, Mark R. Hake did not own any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
