As we move into the second quarter of 2021, investors may want to reflect on what went down during this most recent mind-blowing quarter. Indeed, 2021 got started off with a bang, as a speculative short-squeeze mania took over the market. The fact that investors in MicroVision (NASDAQ:MVIS) have seen one-year returns of 6,700% should be astounding to investors. However, it’s clear MVIS stock is no outlier. And that says something.
This past quarter saw a continuation in a number of speculative momentum surges in particular sectors.
Yes, the short-squeeze thesis behind surges in popular meme stocks was the talk of Wall Street in late-January, early-February. However, let’s not forget about the SPAC boom of late-2020 continuing into early 2021. Or the clean energy/EV surge fueled by political support and retail investor interest. Reopening plays remain hot. And, more recently, penny stocks have been the focal point of speculators today.
Microvision is unique in that the company is really a combination of a number of factors at play today. There’s been a short squeeze thesis with MVIS stock which really provided retail investors an excuse to go YOLO on a company with relatively poor fundamentals. After all, it was a perfect target for such retail investors this past couple quarters. It was a penny stock (trading around $0.20) just one year ago, with a relatively high level of short interest, and a technology retail investors could get behind.
However, the question today is – just how strong is the momentum for MVIS stock? Can this stock continue higher, despite dwindling interest in SPACs, meme stocks and penny stock plays right now?
Valuation the Key Concern for Many Investors in MVIS Stock
According to the company’s recent financials, the picture really doesn’t look that rosy for MVIS stock.
Indeed, the company has provided investors with nothing short of disastrous earnings. Revenue declined by approximately 65% to just over $3 million this past year.
I mean, $3 million in revenue for a company that’s been operating since 1993 and has yet to capitalize on its LIDAR technology that’s always “ready to turn the corner” with some breakthrough isn’t great. However, when one puts this in the context of its valuation today, the company seems ridiculously overvalued.
MicroVision’s market capitalization is $2.25 billion, at the time of writing. I say “at the time of writing” because this is a company which has experienced some pretty incredible volatility of late.
Accordingly, investors are paying roughly 725-times earnings right now to pick up shares of MVIS stock. That’s borderline insane for any company, even with the best of growth prospects. For a company like MicroVision that posted declines of 65% and 91% on a full-year and quarterly year-over-year basis, there’s absolutely no justification for this valuation today.
MicroVision is another great example of a company with a ton of retail investor interest, but no real fundamental reason for ownership today. As far as speculative excess goes in today’s market, MVIS stock is one that I believe highlights just how crazy valuations can get in this existing market.
In fact, if an award existed for stocks with the most unreal valuations today, MVIS stock would be in the running to win that award. We’ve seen some pretty crazy things transpire of late, but thinking this momentum trade can continue forever is foolish.
The bottom will fall out. I don’t know when, but it will. And unfortunately those who failed to do due diligence on this stock will be hurt badly.
Accordingly, my take on MVIS stock is that there’s no fundamental reason to own this name today. It’s in a speculative bubble right now, and investors holding onto these shares should take profits and run as fast as possible. There are other great pockets of growth at much more reasonable valuations to consider today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.