After a big rally and a subsequent pullback, the shares of Microvision (NASDAQ:MVIS), which develops laser scanner and three dimensional (3D) sensing technology, look to be rallying again.
After vaulting 437% from $5.21 per share to a high of $28 in the first four months of this year, MVIS stock has jumped 36% over the last month. Can its share price climb higher in this year’s second half?
Its outlook seems to be more pessimistic than optimistic, and investors who bought Microvision’s shares before they spiked might want to book their profits before they disappear.
A Reddit Short Squeeze
Microvision is focused on developing laser beam-scanning technology that is used to create high-resolution, miniature projections, as well as solutions for capturing 3D image. Probably the company’s most profitable business segment right now is its consumer light detection and ranging technology, known as “Lidar,” which is used in self-driving vehicles. The company primarily sells its products to equipment manufacturers and designers. While the company is successful, Microvision remains a relatively small firm with quarterly revenues of less than $1 million.
Like a lot of small companies, what drove Microvision’s stock sky-high earlier this year was a short squeeze executed by the retail trading mob on Reddit’s r/WallStreetBets. In fact, the Reddit traders squeezed MVIS stock twice this year, once in early February when its share price hit $23.72 and again in late April when it hit $28. After each squeeze, Microvision’s stock fell sharply, dropping as low as $10 per share after the February run-up.
Microvision took advantage of the jump in its stock price, issuing 2.5 million shares of its common stock in February and raising $48.7 million. The company has said that it plans to use the money to shore up its balance sheet and develop a best-in-class Lidar sensor that it will sell to the automotive industry.
Tesla Connection
One of the reasons that Reddit traders were attracted to MVIS stock is because of Microvision’s tenuous connection to electric-vehicle maker Tesla (NASDAQ:TSLA). A Tesla Model Y electric vehicle was photographed using Lidar, leading to speculation that the company run by Elon Musk is planning to adopt Lidar for use in all of its vehicles that include a self-driving feature. News reports later confirmed that Tesla has signed a deal with Luminar (NASDAQ:LAZR), a leading company in the Lidar space, to create and test Lidar sensors for use in Tesla’s vehicles.
The exact connection between Tesla and Microvision remains unclear. Currently, actually, there doesn’t appear to be a connection. However, investors who frequent the Reddit chat boards worked themselves up into a frenzy at the idea that Lidar sensors could become commonplace in self-driving vehicles that are replacing conventional cars. So far, the rumors involving Lidar and Tesla have not helped Microvision’s financial position in any way.
Mounting Losses
As mentioned, Microvision is a small company with limited sales. It’s also unprofitable. On April 29, Microvision reported its first-quarter results that showed the company had Q1 revenue of $500,000, down 67% from $1.5 million during the same period a year earlier. The company’s loss per share came in at 4 cents, which was twice as bad as the loss per share of 2 cents that analysts, on average, had expected. MVIS stock fell 21% immediately after its first-quarter results were announced.
The company’s growing losses are one of the reasons why professional traders have heavily shorted MVIS stock. Ironically, it is the short positions of Wall Street traders that have helped attract Reddit investors to the stock.
Whether Microvision’s stock will continue climbing remains to be seen. But investors should be aware that the median price target that analysts have on Microvision stock is just 25 cents, though analyst coverage of the stock is light. In May 2020, Microvision’s stock was trading at 90 cents per share.
MVIS Stock Is Not Worth the Risk
MVIS stock is not worth $18.22 per share, the price at which it closed yesterday. The company’s sales and financial performance do not justify the stock’s current valuation. While some excitement was generated when Tesla began experimenting with Lidar sensors, the electric vehicle manufacturer is not currently working with Microvision on any products. Microvision’s future remains unclear ,and the best investors can hope for is another short squeeze by Reddit day traders.
Given Microvision’s dim prospects, investors should stay away from MVIS stock. It’s just not worth the risk. Microvision is not worth buying.
On the date of publication, Joel Baglole 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.
