MicroVision (NASDAQ:MVIS) held a conference call on May 2 to discuss its first quarter of 2021. What is particularly interesting is that the CEO, once again as I pointed out last month, clearly said that the company is up for sale. This has clear implications for MVIS stock. The more he discusses a potential sale, the less chance there is that the stock will not fall, despite being overvalued.
The CEO, Sumit Sharma, was a little more diplomatic than last month. This time he said three times that MicroVision wants to “maximize shareholder value.” That is code for a sale of MVIS stock. As I argued in my previous article, the problem is the company is very overvalued at its $2.2 billion market value.
Production and Sales
It was interesting that the company provided projections of potential production volumes next year of its new Lidar system. This is a high-performance system, which can refresh its analysis 30 times per second, will gear up to 12,000 to 15,000 sensors by the end of 2022. However, the company did not estimate how much they would sell for. They clearly sell these as an OEM part to vehicle manufacturers.
And that is the rub. If the company obtains a large order from one manufacturer, this could mean that other car or truck makers may not want to use the part. They will look elsewhere to make sure their Lidar product and capabilities are competitive. So the pricing will be higher if it has only one taker. If there are multiple takers, it can lower the price. But it won’t know for sure.
This is probably why MicroVision wants to sell itself. That way, it can get a return on investment on all its patents and R&D work quickly, rather than slowly over time selling to probably one or maybe to OEM electric vehicle (EV) makers.
And that is why MVIS stock is so highly valued. For example, analysts estimate sales of just $5 million for 2021. But there are not Street estimates for 2022 sales. Analysts tend to not want to follow companies that have clearly put themselves up for sale.
Let’s say that it can sell each sensor for $1,000 to $2,000. That puts its 12,000 to 15,000 production volume on a gross sales range of $12 million to $30 million. That assumes all its Lidars can be sold. But it also means the MVIS stock price-to-sales (P/S) multiple is at a high 73 times multiple (i.e., $2.23 billion divided by $30 million).
However, my premise is probably off. For example, Velodyne Lidar (NASDAQ:VLDR) introduced its latest Lidar at a price point of below $500.00, according to Reuters. If MicroVision matches this price point, its P/S multiple is very high at 146 times revenue.
But consider this. Velodyne has a similar market cap at $2.24 billion. Analysts forecast sales of $93.76 million this year. That puts its P/S ratio at just 24 times.
This implies that MVIS stock is at least two-thirds overvalued (i.e., 24 times P/S compared to 74 x = 33%). And if it has to match $500 per sensor, it is at least twice more overvalued.
Therefore, expect to see MVIS stock slowly move down. That is unless it finds a sucker that is willing to pay $2.2 billion or more.
What To Do With MVIS Stock
You can probably see what is going on. In private meetings, MicroVision probably points out that its new sensor is lightyears ahead of Velodyne’s. Therefore, the MVIS purchase price should be a premium to Veloydne’s. On the other hand, if there is no buyer within 6 months and the company has to start producing products at a slow sales ramp, the stock could fall a good deal.
Let’s use a probability range to estimate what could happen. For example, let’s use (1) a 50% likelihood that MVIS could rise 25% from a sale, (2) a 40% probability it could fall 50%, and (3) a 10% chance it will tread water at just a 10% gain.
All three of these scenario chances add up to 100%. But scenario 1 has an expected return (ER) of +12.5% (i.e., 0.5 x 0.25), Scenario 2’s ER is -20% (-.40 x -.50), and (3) the ER is 1% (0.10 x 0.10). Therefore, the sum of these probability estimates is an ER of -6.5% (i.e. 12.5% – 20% +1%).
So expect to see MVIS stock fall 6.5% per share from today’s value if you make an investment. That is its likely expected return. However, the range is as wide as -50% to +12.5%.
On the date of publication, Mark R. Hake did not hold a long or short position in any security mentioned in the article.